What’s Changing Under Phase One of MTD for Income Tax
From 6 April 2026, UK sole traders and landlords with annual income over £50,000 must:
- Keep digital records using recognised software
- Submit light-touch quarterly updates of income and expenses
- Continue to file an annual Self Assessment return as before, but using software that supports MTD compatible reporting (gov.uk)
Penalties for late quarterly updates will not kick in immediately—For the first 12 months there will be no penalty points for late submissions. The £200 fine only applies after four penalty points accumulate. (gov.uk)
Practical Steps to Get Compliant
- Check if you’re in scope: Income thresholds, business type & whether you’re a landlord or trader count. Over £50K from April 2026 qualifies. Lower thresholds will apply in later phases as the income thresholds drop. (gov.uk)
- Choose recognised software that supports digital record-keeping, quarterly updates, and annual return filing. Free, low-cost options should exist. Test software early.
- Keep updated records throughout the year, including income, expenses, and any changes in income source. Correct errors immediately. (gov.uk)
- Budget time and resources: Quarterly updates require regular attention—set aside time for bookkeeping and reconcile entries quarterly.
Example
Say Alice is a sole trader with £60,000 net annual turnover. Starting 6 April 2026, each quarter she uses compatible software to report earnings and normal expenses. Suppose each Q she misses 1 update during rollout—no penalty that year. But from year two, missing 4 updates could trigger the £200 fine. Her annual return in Jan 2028 will also need to reflect digital records, not old paper forms.
Why It Matters
- More consistent reporting helps avoid large surprises at year-end
- Better record keeping can reduce errors, easing audits
- Helps HMRC detect non-compliance earlier; cross-subsidises transparency and fairness
Actionable Takeaway: If you earn over £50,000 from self-employment or property, start using recognised digital software before 6 April 2026, setup quarterly filing habits now, test compatibility, and coordinate with your accountant or agent.