Overview of the changes
The UK government has introduced phased mandation of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA). Under these rules:
- From 6 April 2026, sole traders and landlords with business or property income over £50,000 will have to keep digital records, use compatible software, and submit quarterly summaries. (gov.uk)
- From 6 April 2027, the threshold lowers to £30,000 for those with qualifying income above that amount. (gov.uk)
- In addition, the government set out plans for requiring those above £20,000 in income to be brought in under MTD by April 2028. Legislation is expected. (gov.uk)
Key actionable steps
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Invest in compatible software: Make sure accounting software supports digital record keeping and quarterly updates. Check for compatibility with HMRC’s MTD system.
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Start early: Even if you’re below thresholds now, you may voluntarily adopt digital reporting. Early adoption helps iron out any kinks. Use HMRC’s testing programme launching ahead of 2026. (gov.uk)
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Organise accounting records: Ensure expenses, income, property income are clearly separated; digitise paper records; reconcile bank accounts frequently to avoid last-minute surprises.
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Understand what counts as ‘qualifying income’: This includes gross income from self-employment and property before deducting expenses or allowances. Be aware of what doesn’t qualify. (gov.uk)
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Check exemptions: Certain people may be exempt, e.g. digitally excluded, trustees, non-resident companies, those completing returns due to death, etc. (gov.uk)
Risks of late preparation or non-compliance
- Missing deadlines may lead to penalties. Late payment penalties are increasing under MTD for those who must join. (gov.uk)
- Errors in quarterly updates can lead to incorrect tax estimates and surprise bills.
- Cashflow issues if you’ve budgeted assuming end-of-year reporting but now have quarterly tax estimates.
Example timeline
| Date | What to do |
|---|---|
| Now through 2025 | Assess income history; choose software; test digital record-keeping; optionally sign up if below threshold. |
| Early 2026 | Be ready for threshold at £50,000; ensure bookkeeping is robust; join testing programmes. |
| 2026-27 tax year | Adjust as threshold drops; plan for transition to £30,000; monitor HMRC guidance. |
| 2027-28 tax year | Prepare for possible £20,000 threshold if legislation passes; scale operations accordingly. |
What this means in practice
Scenario A: Emma is a landlord with gross rental income of £55,000 and some self-employed income. From April 2026, she must keep her records digitally and submit quarterly updates. If she does not, she could face late payment and submission penalties. Preparing ahead reduces stress.
Scenario B: Raj has property income of £35,000. He has until April 2027 before it becomes mandatory, but adopting digital reporting voluntarily could help spread administrative cost and reduce error.
Summary
The phased rollout of MTD for ITSA means that many sole traders and landlords will soon be required to shift from annual Self Assessment to a more frequent, digital-first tax compliance cycle. Early action—software investment, record organisation, understanding income thresholds—can make this transition smoother and avoid costly mistakes down the line.