Making Tax Digital for Income Tax: The 2026/27 Guide for Sole Traders & Landlords
Making Tax Digital (MTD) is the biggest change to how small businesses report tax in a generation. From 6 April 2026, it reaches income tax — and if you're a sole trader or landlord earning over £50,000, you're in the first wave.
Here's exactly what's changing, who it affects, and what you should do now.
What is Making Tax Digital?
MTD is HMRC's programme to replace annual paper-based reporting with digital records and digital filing. It's already mandatory for VAT — every VAT-registered business files through MTD-compliant software. Now it's coming for income tax.
Under MTD for Income Tax Self Assessment (ITSA), instead of one tax return a year, you:
- Keep digital records of all business income and expenses (no more spreadsheets with handwritten receipts)
- Send quarterly updates to HMRC during the tax year — not full returns, just income and expense totals
- Submit an End of Period Statement at the end of the year, confirming final figures
- File a final declaration with any additional information, replacing the traditional Self Assessment return
The MTD for income tax timeline
| Income (gross, from self-employment & property) | When MTD becomes mandatory |
|---|---|
| Over £50,000 | 6 April 2026 |
| Over £30,000 | 6 April 2027 |
| Over £20,000 | April 2028 |
The threshold is based on your gross income in the previous tax year. If your 2024/25 income was over £50,000, you're in scope from day one — with your first quarterly update due by 7 August 2026.
Good news: a soft landing
The Autumn Budget 2025 confirmed that late-submission penalties for quarterly updates won't apply during the 2026/27 tax year — HMRC's attempt to make the transition less painful. That doesn't mean you can ignore it. You're still required to keep digital records and file on time; the penalty reprieve is a safety net, not a free pass. The new penalty regime applies to everyone else from April 2027.
Do you need MTD-compliant software?
Yes. You must use HMRC-recognised software — the "Making Tax Digital for Income Tax" list. The good news: if you already use cloud accounting software like Xero or QuickBooks for bookkeeping, you're probably already using MTD-compliant software; you may just need to enable the right settings.
Options include:
- Cloud accounting platforms (Xero, QuickBooks, FreeAgent) — best for businesses that want bookkeeping plus filing in one place
- Dedicated MTD tools — simpler, cheaper options if you just want to file quarterly updates
- Agent software — your accountant files on your behalf (this is how most clients experience MTD: the accountant handles it)
What happens to Self Assessment?
The annual Self Assessment return doesn't disappear — it's replaced for MTD taxpayers by the final declaration, and HMRC will reconcile your position at year-end. Payments on account and balancing payments still work broadly as before. For many people, the system is actually smoother: quarterly updates mean no more panic-filled January.
Who's NOT affected?
MTD for income tax applies to sole traders and landlords reporting under Self Assessment. It does not apply to:
- Limited companies (they stay on corporation tax)
- Partnerships in the first phase (partnerships join from April 2027)
- Employees and pensioners whose only income is PAYE
How to prepare (in 4 steps)
- Check if you're in scope. Your gross income from self-employment and/or property for 2024/25 (or 2025/26 for the later phases).
- Get your records digital. If you're still using paper, a spreadsheet or a shoebox, move to cloud software now. Your accountant can set it up and migrate your data.
- Choose software or an agent. Most small businesses hand this to their accountant — the software, the quarterly submissions and the year-end are all managed for you.
- Start a habit of monthly bookkeeping. Quarterly updates are much easier if your records are current.
The cost of ignoring it
Penalties for non-compliance start once the reprieve ends, and they compound: late quarterly updates, late final declarations, and late payment of tax all attract separate penalties plus interest. Compliance isn't optional — it's law.
We make MTD invisible
At NTM Associates Ltd we're fully MTD-ready: we keep your digital records, file your quarterly updates and final declaration, and make the whole thing invisible. You carry on running your business. Talk to us about MTD for income tax.
Timeline and thresholds as confirmed in the Autumn Budget 2025 and HMRC guidance as of August 2026.
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