Compliance
Navigating Making Tax Digital: What Sole Traders & Landlords Need to Know
The shift to digital record-keeping and quarterly updates under Making Tax Digital (MTD) is already underway for higher-earning sole traders and landlords — learn what’s required, penalties, and how to prepare.
By NomadicTax Research Team • 5-8 min read • August 27, 2026
## Understanding the Transition to MTD for Income Tax
From **April 6, 2026**, sole traders and landlords in the UK with qualifying income over **£50,000** must use digital records and submit **quarterly updates** to HMRC under the Making Tax Digital for Income Tax (MTD IT). ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
The first update covered the period 6 April to 5 July 2026, with a deadline of **7 August 2026**. ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
Starting **April 2027**, the threshold drops to **£30,000** meaning more people will come into scope. ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
## Penalties & Grace Periods
- For the year **2026-27**, there are **no penalty points** for missing quarterly updates — HMRC is allowing a grace period. ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
- However, **late Self Assessment tax returns** and **late payments** still attract existing penalties. The self-assessment deadline of **31 January** remains. ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
- From **6 April 2027**, those required to use MTD who miss quarterly deadlines will receive one **penalty point per missed update**. Four points triggers a **£200 fixed penalty**. ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
## Who’s in Scope & When
| Qualifying Income | In Scope From | Notes |
|-------------------|----------------|--------|
| Over £50,000 | 6 April 2026 | Should already be submitting quarterly updates for 2026-27 tax year ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai)) |
| Over £30,000 | April 2027 | New lower threshold brings in more taxpayers ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai)) |
Some are exempted, e.g. those who are **digitally excluded**. HMRC provides exemptions based on criteria such as accessibility, health, etc. ([gov.uk](https://www.gov.uk/government/news/436000-sole-traders-and-landlords-make-their-tax-digital?utm_source=openai))
## Examples & What You Should Do Now
- **Example 1:** Jane is a landlord with income £55,000 in 2026-27. She must keep digital records and submit quarterly updates in 2026-27. If she misses her first update (due 7 August), she gets no penalty for now, but must submit to avoid issues later.
- **Example 2:** Tom a sole trader with £35,000 income. For 2026-27, he is not yet in scope. But from April 2027, Tom will be required to comply. He should prepare now: invest in digital accounting software, ensure records are properly tracked.
## Actionable Advice
- **Choose recognised software early.** Ensure your bookkeeping tool is compatible with HMRC’s requirements.
- **Start digital records today.** Even if not yet required, good habits now will avoid scramble later.
- **Track all income and expenses daily.** With quarterly updates, small omissions become magnified.
- **Plan cash flow for payments.** Quarterly updates don’t change when Self Assessment tax is due (31 January), but penalties for late payments and returns still apply.
## Summary
MTD for Income Tax is a seismic shift in UK tax compliance. Higher-earning sole traders and landlords are already subject to its rules. Penalties are delayed for late quarterly updates this year, but from April 2027, points-based penalties kick in. Early preparation, clean digital records, and awareness of thresholds will make the transition much smoother.