From April 2026, the way many sole traders and landlords report their income to HMRC will change.
It’s called Making Tax Digital for Income Tax – or MTD for short. And while it may sound like yet another layer of government admin, it’s quite a good idea.
It means more frequent reporting of your income to HMRC. That may seem like a burden, but it also pushes businesses towards better record-keeping and more up-to-date financial information.
The extra discipline that it will bring will likely save time in the long run and regular estimates of income tax liability make it simpler to put an appropriate amount aside.
So, what’s changing?
Now, most sole traders and landlords keep their records in whatever format suits them and submit one Self-Assessment tax return each January. Under MTD, you’ll be required to keep digital records using recognised accounting software. That might be a bookkeeping app on your phone, cloud accounting software on your laptop, or compatible systems managed by your accountant.
Instead of dealing with everything once a year, income and expenses will need to be recorded throughout the year as you go. Receipts can be photographed and stored digitally using apps. Invoices will need to be logged as they are raised. The intention is simple: spread the admin across the year instead of cramming it into January.
Every three months, you will be required to submit a summary of income and expenses directly to HMRC via compatible software. These quarterly updates are not tax returns. They are effectively progress reports – snapshots of how the business is performing during that period. If your records are up to date, the submission should be straightforward.
Importantly, this does not mean paying tax four times a year. Income Tax will still be due by 31 January as it is now. The change is about reporting frequency, not payment deadlines.
At the end of the tax year, the four quarterly updates are consolidated into a final submission. You’ll review the figures, include any additional income such as bank interest or pensions, claim reliefs where appropriate, and submit the final declaration digitally. HMRC will then calculate the final tax position.
The rollout is staged.
If your combined turnover from self-employment and property income exceeds £50,000, you’ll join MTD from 6 April 2026.
If it exceeds £30,000, your start date is April 2027.
If it exceeds £20,000, it begins in April 2028.
Turnover means gross income before expenses – not profit. HMRC will use your most recent tax return to determine whether you fall within scope.
For those in the trades, particularly construction, the Construction Industry Scheme still applies. Contractors will continue submitting monthly CIS returns. Subcontractors will incorporate CIS deductions into their quarterly MTD updates. Most modern accounting systems can handle both – but choosing the right software will matter.
Landlords and individuals with multiple income streams must maintain separate digital records for each source of income. Self-employment and property income are reported separately during the year, even though they ultimately combine into one overall tax calculation.
Limited companies are not affected by MTD for Income Tax. This change applies only to sole traders and landlords. However, VAT-registered businesses will already be familiar with the Making Tax Digital concept, as MTD for VAT has been operating for some time.
There will be a new points-based penalty system. Miss a quarterly submission and you receive a penalty point. Accumulate enough points and a financial penalty follows. The system is designed to encourage timely, accurate digital reporting rather than last-minute scrambling.
Exemptions do exist for those who are genuinely digitally excluded due to age, disability, location, or other valid reasons. However, exemptions are not automatic and must be applied for.
The government’s stated aim is to modernise the tax system and reduce errors. Whether or not you agree with the policy direction, one thing is clear: tax reporting is becoming more digital, more regular, and more automated.
There are real benefits. The reality is that many small business owners leave record-keeping until the last minute and January becomes a mad scramble to get everything done, which then results in an unexpected tax bill. Up-to-date digital records mean better visibility of cash flow. You can see an estimated tax position throughout the year instead of being surprised in January. Errors are identified earlier. Receipts don’t get lost. The annual panic becomes less intense.
Change rarely feels comfortable, particularly when it involves tax and compliance. But MTD for Income Tax is not going away, and hoping for another delay is not a strategy. The sole traders and landlords who get their systems in place early will find the transition far smoother than those who leave it until the first quarterly deadline is approaching. As with most regulatory changes, the real stress doesn’t come from the rule itself – it comes from being unprepared.
If you’re unsure whether MTD will apply to you, or you’d like help choosing the right software and setting things up properly, speak to your accountant. And if you’d like a straightforward, practical approach to getting ready, we’re always happy to help at Clever Bean Accounting.