Making Tax Digital for Income Tax (MTD IT) - Key Points You Need To Know

HMRC have confirmed that this is coming in April 2026. Making Tax Digital for Income Tax (MTD IT) will change the way that sole traders and landlords manage their taxes. The new rules require digital record keeping and submission of quarterly updates to HMRC, with a final year end declaration. If you are a sole trader or landlord, it’s important to understand these upcoming changes in order to be compliant and avoid penalties.

Who Will Making Tax Digital for Income Tax Affect?

MTD IT will affect sole trader businesses and landlords based on their turnover. If you fall into one of these categories, it’s time to start preparing now.

From April 2026 – Sole traders or landlords with turnover over £50k
From April 2027 – Sole traders or landlords with turnover over £30k
From April 2028 – Sole traders or landlords with turnover over £20k

As a reminder, turnover can also be referred to as sales or revenue. It's important to note that this is not based on profit.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is a government initiative to digitise the UK tax system and bring it into the 21st century. The aim is to reduce errors, improve efficiency and make tax filing more transparent and accurate. Under MTD IT businesses which are mandated must keep digital records and submit their tax information to HMRC quarterly, rather than filing an annual tax return as you will be used to currently.

How Making Tax Digital Will Affect Sole Traders and Landlords

Here’s how MTD IT will impact both sole traders and landlords:

Quarterly reporting will become mandatory

Both sole traders and landlords will be required to report their income and expenses to HMRC every three months.

Digital record keeping is essential

Paper-based records will no longer be sufficient. You’ll need to keep digital records of all your financial transactions by using digital software.

Using MTD-compliant software

The accounting software you choose to manage your finances must be MTD-compliant.

We would recommend using Xero or QuickBooks online.

Get clear on your finances

MTD IT offers an opportunity to get a clearer picture of your finances. With access to real-time financial information, it will help you make informed decisions, track your cash flow and maximise profits.

What Steps Should Sole Traders and Landlords Take Now?

Here’s what you can do now to get ensure and ensure you are ready for MTD IT:

Start using MTD-compliant software

The first step in preparing for MTD IT is to invest in accounting software that is MTD-compliant. This software will help you track your income and expenses, generate quarterly updates and submit them directly to HMRC.

Set up digital record keeping systems

Organising your income and expenses in your chosen software to ensure your financial information is easily accessible and ready for quarterly updates.

Get professional help

Whether you’re a sole trader or managing rental properties, working with a bookkeeper or accountant who understands MTD IT is invaluable. If you need some support in setting up accounting software or implementing the right processes to ensure your business finances are in order, book in a free intro call with us.

Preparing for MTD IT and Staying Compliant

Making Tax Digital for Income Tax is set to change the way sole traders and landlords manage their finances and taxes. With quarterly reporting, digital record keeping and the use of MTD-compliant software, both will need to adapt to these new rules. By taking action now you can understand your software and processes ahead of April 2026. Staying compliant will help you avoid penalties and make managing your taxes easier and more efficient in the long run.

For more detailed information on MTD and how it applies to sole traders and landlords, click here.