Making tax digital for sole traders and landlords

What’s happening

If you have gross income (before expenses and tax are deducted) from self-employment and property of more than £20,000, you will need to use MTD for Income Tax.

You will be required to keep digital records and send quarterly updates of your income and expenses to HMRC; using MTD for Income Tax compatible software such as Xero.

At the end of the year, HMRC will combine the quarterly  updates with information  that it holds elsewhere, including income from PAYE employment or a pension. Additional personal income HMRC does not hold, such as investment income, can be added at any time during the year. You will then make adjustments to your business income, and check that your income from all sources is recorded, before confirming that the information you are submitting is correct and complete.  

There will be a new penalty regime to support MTD for Income Tax from April 2026. When you miss a quarterly or annual submission obligation, you will receive a penalty point. Once you reach the points threshold, you will receive a financial penalty. New late payment penalties are charged at different rates based on when the outstanding amount is paid.    

When you will legally have to use MTD for Income Tax and when you will have to start using the system depends on your MTD for Income Tax qualifying income included on your 2024-25 tax return. The qualifying income is the gross income (before expenses and tax are deducted)  that you receive in a tax year from self-employment and property combined.

When will it apply to you

You will need to use MTD for Income Tax:

• from 6 April 2026, if your gross income from these sources totals over £50,000
• from 6 April 2027, if your gross income from these sources totals over £30,000
• from 6 April 2028, if your gross income from these sources totals over £20,000.

HMRC will use the qualifying income included on your most recent tax return to identify if you will have to start using MTD for Income Tax.

For example, if you have to use MTD for Income Tax from 6 April 2026 this will be identified based on your 2024 to 2025 tax return (which has to be submitted by 31 January 2026).

The current annual Self Assessment obligations will not change for those who don’t have to join MTD for Income Tax.  

HMRC will send a letter to customers identified as needing to use MTD for Income Tax before April 2026. You should start preparing for the change now.  

Partnerships are not impacted by Making Tax Digital for Income Tax and are unable to register.