10 things every sole trader and landlord should know about MTD for Income Tax

The first phase of HMRC’s introduction of Making Tax Digital (MTD) for Income Tax will take place on 6 April 2026.  

It will affect an estimated 864,000 sole traders and private landlords who currently report their taxable income via Self Assessment, while millions more will be impacted in the next few years. So, if you’re a sole trader or private landlord – what 10 key facts should you know about MTD for Income Tax? 

When will MTD for Income Tax be introduced?       

1 From 6 April 2026, sole traders and landlords with a gross trading, gross rental or combined gross income from trade and rent of more than £50,000 in the 2024/25 tax year will need to comply with new MTD for Income Tax accounting and tax-reporting requirements.  

Need to know! Gross trading or gross rental income means total annual income before any tax expenses are deducted. 

2 From 6 April 2027, sole traders and landlords with a gross trading, gross rental or combined gross income from both of £30,000-£50,000 in the 2025/26 tax year must comply with MTD for Income Tax rules. 

3 From 6 April 2028, the government plans to lower the gross income threshold to £20,000. No introductory date has yet been given for those earning gross income below £20,000 from trading, rent or both. 

Need to know! Failure to comply with MTD for Income Tax requirements can result in an HMRC penalty.  

How will reporting change under MTD for Income Tax?  

4 MTD for Income Tax requires sole traders and landlords to keep accurate, regularly updated digital records of their taxable income and costs, so they can report them digitally each quarter to HMRC. This is a major difference to the Self Assessment system, where summaries must be reported only once.  

5 To send their income and cost summaries to HMRC digitally, sole traders and landlords must either use MTD-compatible accounting software, or “bridging software” that enables quarterly digital reporting using their existing accounting software or digital spreadsheets.  

Need to know! “Digitally excluded” taxpayers can apply for exemption on grounds of their age, a health condition or disability preventing them using a computer, tablet or smartphone. Exemptions may also be granted where religious beliefs aren’t compatible with digital communications, or if someone lives in a remote location without internet connection.  

6 Once introduced, each quarter (ie every three months), the MTD-compliant accounting software, which must be updated fully, will create quarterly updates, summarising total taxable income and expenses. 

Need to know! The quarterly filing deadlines are: 6 Apr – 5 Jul = 5 August; 6 Jul – 5 Oct = 5 Nov; 6 Oct – 5 Jan = 5 February; 6 Jan – 5 Apr = 5 May (ie filing is required within a month of the end of the quarter).  

7 After a quarterly summary update has been sent digitally to HMRC, a tax estimate will be shown within the software, better enabling sole traders and landlords to budget for paying their tax bill when due.  

8 After the fourth quarterly update, the software will show figures for the whole tax year. Tax adjustments (eg capital allowances, accrued expenses) can then be made. You must submit an End of Period Statement (EPOS) for each business or property income source. 

9 To finalise their Income Tax position, if applicable, sole traders and landlords must digitally report other taxable income to HMRC (eg from taxable dividend payments). A Final Declaration must then be made, confirming the accuracy of the information provided to HMRC.  

Need to know! The Final Declaration replaces the annual Self Assessment tax return. This is where you finalise all income, expenses, reliefs and allowances.   

10 The Final Declaration must be filed by 31 January following the end of the tax year (5 April) during which the taxable income was earned or received. HMRC will then calculate the final tax bill.  

Should sole traders and landlords worry about MTD for Income Tax?  

If you’re already using accounting software and updating it regularly, MTD for Income Tax won’t be a problem, as long as your software allows you to report quarterly summaries digitally to HMRC. If you’re not sure, ask your software provider.  

If your current accounting software isn’t MTD for Income Tax compatible, it could be time to switch to software that is, but check that your historic accounting figures can be migrated into your new system. 

• Government website GOV.UK features an online tool “to help you find software that meets your Making Tax Digital for Income Tax needs.” Free and paid-for options are available.  

Alternatively, you could stick with your current non-compliant accounting software or digital spreadsheets and get bridging software, so you can comply with MTD for Income Tax reporting requirements.  

If you don’t use accounting software (40% of small UK businesses still rely on spreadsheets or manual records) and don’t plan to hire a bookkeeper or accountant to take care of your MTD reporting, you’re going to have to start using it – but that really is nothing to worry about.  

Accounting software business benefits 

It’s quick and simple enough to install accounting software and get used to using it. Accounting software aimed at sole traders, small businesses and private landlords is remarkably easy to use.  

Many repetitive tasks are automated and accounting software can easily be connected to your credit card and bank accounts, which makes managing your expenses much easier. You’re also less likely to forget to claim allowable tax expenses. Accounting software can also be accessed via computer or remotely via mobile devices, so it’s convenient, too. 

Accounting software often comes with free invoicing, so you can rapidly produce and email your invoices, with the software reminding you to chase payment when overdue. Reports from your accounting software can be produced in seconds, so you can assess your business finances and performance. The business benefits of using accounting software go way beyond compliance with MTD for Income Tax.   

If you are a sole trader and/or landlord who will be affected by Making Tax Digital changes from April 2026 or in subsequent years, the message is clear. Choose the right accounting software and it makes compliance much simpler, while bringing a wide range of other business benefits. Change can often be a very good thing.  

Sole traders and SMEs in Bath and North East Somerset, Bristol, Gloucestershire, North Somerset, South Gloucestershire, Swindon and Wiltshire can apply now for free support from Tech Adoption for Growth. Tech Adoption for Growth is being delivered by Business West and TechSPARK, in partnership with the West of England Mayoral Combined Authority and funded by UK Government.