Making Tax Digital for Income Tax: What UK Sole Traders and Landlords Need to Know
Running a business involves keeping on top of customers, suppliers, finances and tax. For many sole traders and landlords, tax reporting has traditionally meant keeping records throughout the year and submitting a Self Assessment tax return once a year.
That is changing.
Making Tax Digital (MTD) for Income Tax is being introduced by HMRC to move more businesses towards keeping digital records and reporting income and expenses electronically throughout the year.
The first stage began on 6 April 2026, affecting sole traders and landlords with qualifying income of more than £50,000. The rules will then expand to more taxpayers in future years.
For businesses that are affected, understanding the new requirements now can make the transition much easier.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax requires certain sole traders and landlords to keep their business records digitally and send information to HMRC using compatible software.
Rather than simply keeping records and submitting one tax return at the end of the year, taxpayers within MTD will need to send quarterly updates summarising their income and expenses.
It is important to understand that a quarterly update is not a tax return. It is a summary of the income and expenses recorded during the relevant period.
You will still need to complete your end-of-year tax return and make sure any relevant adjustments, reliefs, allowances and other income are included.
Who Needs to Use Making Tax Digital?
The first phase of MTD for Income Tax began on 6 April 2026.
You need to use MTD for Income Tax from this date if you are an individual who:
Is registered for Self Assessment.
Has income from self-employment, property, or both.
Has qualifying income of more than £50,000.
The rules are being introduced in stages.
From April 2026
MTD applies to individuals with qualifying income above £50,000.
From April 2027
The threshold reduces to more than £30,000.
From April 2028
The threshold reduces again to more than £20,000.
This means that even if your business is not currently required to use Making Tax Digital, it could be affected in the future.
HMRC Is Now Signing People Up
This is particularly important for businesses that fall within the first phase.
From September 2026, HMRC has started signing up individuals who should be using MTD for Income Tax for the 2026/27 tax year but have not already signed up themselves. HMRC says this applies where its records show qualifying income was above £50,000 for the 2024/25 tax year.
If you are contacted by HMRC, don't ignore the letter or message.
You will need to make sure you understand your obligations, have suitable software in place and are keeping the required digital records.
What Records Do You Need to Keep?
One of the biggest changes is the move towards digital record keeping.
If you are within MTD for Income Tax, you will need compatible software that can create, store and correct digital records of your business income and expenses.
Your records should give you an accurate picture of the transactions taking place within your business.
This could include:
Sales and other business income.
Purchases and allowable expenses.
Relevant property income and expenses.
Other information needed to calculate your taxable profits.
The aim is to make your records digital from the start rather than relying on paper records or spreadsheets that cannot meet the MTD requirements.
What Are Quarterly Updates?
Quarterly updates are one of the biggest changes introduced by Making Tax Digital.
Every three months, your compatible software will total the income and expenses recorded for your business and send the relevant information to HMRC.
For the standard tax-year reporting periods, the deadlines are:
Period covered | Deadline |
6 April to 5 July | 7 August |
6 April to 5 October | 7 November |
6 April to 5 January | 7 February |
6 April to 5 April | 7 May |
The quarterly updates are cumulative, meaning each update covers the period from the beginning of the tax year up to the end of that update period.
This means you don't simply send the previous three months' figures each time.
Your software will help calculate the relevant totals and submit the information to HMRC.
Do Quarterly Updates Replace Self Assessment?
No.
This is an important point because there is often confusion about this.
Quarterly updates do not replace the tax return.
At the end of the tax year, you will still need to submit your tax return and include relevant information such as other income, tax reliefs and allowances. You will also need to pay any tax owed by the normal deadline.
For the 2026/27 tax year, the tax return deadline remains 31 January 2028.
What Software Do You Need?
You cannot simply use any accounting software and assume it will meet the requirements.
HMRC requires taxpayers within MTD for Income Tax to use compatible software to maintain digital records and send quarterly updates.
There are a number of software providers available, and HMRC provides a list of recognised compatible products. HMRC does not recommend one particular software provider over another.
The right choice will depend on your business.
For example, a sole trader with straightforward transactions may need a relatively simple bookkeeping package, while a business with more complex records may benefit from a more comprehensive accounting system.
What Happens If You Miss a Deadline?
This is another important area for businesses to understand.
For the 2026/27 tax year, HMRC has confirmed that there will be no penalty points for late quarterly updates.
However, this does not mean there are no penalties at all. Penalties can still apply for late tax returns and late payment of tax.
From the second year onwards, the points-based system will apply to missed quarterly update deadlines.
Generally, you receive a penalty point for each missed submission deadline. Once you reach the relevant threshold, a £200 penalty can apply, with further £200 penalties for subsequent missed deadlines.
This makes keeping your bookkeeping up to date increasingly important.
How Can You Prepare for Making Tax Digital?
If you are likely to fall within MTD, preparing early is much easier than trying to change your bookkeeping system at the last minute.
Here are some practical steps you can take:
Check whether you are affected – look at your qualifying income and determine when MTD applies to you.
Choose compatible software – make sure the software you use can meet HMRC's MTD requirements.
Keep your records up to date – don't wait until the quarterly deadline approaches.
Keep supporting documents – retain invoices, receipts and other evidence for your transactions.
Understand your deadlines – put the quarterly update dates in your calendar.
Speak to your accountant – particularly if you're unsure whether your income falls within the MTD rules.
The earlier you make these changes, the easier the transition should be.
Making Tax Digital Doesn't Have to Be Complicated
For many business owners, the biggest concern isn't necessarily the tax itself, it's the additional administration.
The good news is that if your bookkeeping is already organised and you're using suitable accounting software, much of the process can become part of your normal routine.
Instead of leaving your bookkeeping until the end of the year, you'll have a much clearer picture of your income and expenses throughout the year.
This can also help with cash flow planning and understanding how your business is performing.
How Even Solutions Can Help
Making Tax Digital is a significant change for many sole traders and landlords, but you don't have to manage it alone.
At Even Solutions, we can help you understand whether Making Tax Digital applies to you, choose an appropriate bookkeeping approach and keep your records organised throughout the year.
We can also help with quarterly updates and your year-end tax return, giving you confidence that your records are accurate and your submissions are completed on time.
If you're unsure whether Making Tax Digital for Income Tax affects you, or you're worried about getting ready for the new requirements, get in touch with Even Solutions.
The earlier you prepare, the easier the transition will be.
