Making Tax Digital for income tax: A guide for sole traders and landlords
If you’re a sole trader, a landlord, or both, there’s a significant change to how you report your income to HMRC that you can’t ignore. Making Tax Digital for Income Tax (MTD for IT) is already here, and getting to grips with it now will save you a great deal of stress.
This guide walks you through what it means in practice, the deadlines, the software, and what you should be doing.
What is Making Tax Digital for income tax?
The UK government is changing how sole traders and landlords report their income to HMRC. Under the new system, you’ll move away from filing a single Self Assessment return each year. Instead, you’ll use HMRC-approved software to keep digital records and send in quarterly updates on your income and expenses as the year progresses.
It’s already been in force for VAT since 2019, and now income tax is next. Think of it less as doing your taxes more often, and more as keeping on top of your finances in real time throughout the year rather than scrambling each January.
Who does it apply to?
MTD for Income Tax is being rolled out in phases, based on your qualifying income. This is your combined gross income from self-employment and UK property before expenses are deducted. It’s based on turnover, not profit.
Here’s the rollout timeline:
- From 6 April 2026: Qualifying income over £50,000 (based on the 2024/25 tax year)
- From 6 April 2027: Qualifying income over £30,000 (based on the 2025/26 tax year)
- From 6 April 2028: Qualifying income over £20,000 (based on the 2026/27 tax year)
You can use HMRC’s online checker tool to confirm when you need to start.
If you earn from both self-employment and property, these figures are combined. So if you’re a freelancer earning £30,000 and a landlord earning £25,000, your combined qualifying income of £55,000 brings you into scope from April 2026. Limited company landlords are not affected. MTD for Income Tax only applies to unincorporated landlords and sole traders who hold property or run a business in their own name.
What does it actually require?
Under the new system, you’ll have five submissions per year instead of one.
The four quarterly updates
You’ll submit a summary of your income and expenses to HMRC every three months. The deadlines are:
- Q1 (6 April to 5 July): Due 7 August
- Q2 (6 July to 5 October): Due 7 November
- Q3 (6 October to 5 January): Due 7 February
- Q4 (6 January to 5 April): Due 7 May
Each quarterly update automatically covers the period from the start of the tax year to the end of that quarter. For example, the second update includes figures already reported in the first update, together with any additional income and expenses recorded since then.
Any errors from a previous quarter can be corrected in the next submission. Importantly, a quarterly update is not a full tax return. You’re not calculating your tax liability at this stage. You’re simply reporting your running totals of income and expenses.
The final declaration
After your four quarterly updates, you’ll complete a Final Declaration by 31 January following the end of the tax year. This is where you make accounting adjustments, claim personal tax reliefs, declare other income sources, and confirm everything is accurate. For tax years covered by MTD for Income Tax, the annual Self Assessment process is replaced by a Final Declaration submitted through compatible software.
Digital record keeping
All income and expenses must be recorded digitally using MTD-compatible software. Paper records alone won’t be sufficient, and you’ll need to keep digital records for at least five years.
If you’re both a sole trader and a landlord, you’ll need to submit separate updates for each income source, so two updates per quarter.
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What software do you need?
HMRC does not provide its own dedicated MTD for Income Tax software. Instead, taxpayers must choose compatible software from HMRC’s approved list. Options range from full accounting packages to simpler bridging solutions that work alongside spreadsheets.
There are three main routes:
- Full accounting software such as Xero, QuickBooks, FreeAgent, or Sage. These handle everything from recording transactions to submitting directly to HMRC, usually with bank feeds and automatic categorisation included.
- Bridging software such as VitalTax or 123 Sheets, which connects your existing spreadsheet to HMRC’s systems. It’s ideal if you’re comfortable with Excel and don’t want to change your workflow.
- HMRC’s free tool, which is available for individuals with very simple affairs. It doesn’t include bank feeds or detailed reporting, so it won’t suit everyone.
When choosing, make sure the software covers all your income types. Some tools support self-employment only and don’t handle property income.
What are the penalties?
HMRC is introducing a points-based penalty system. Here’s how it works:
- Miss a submission deadline and you receive a penalty point
- Reach four points and a £200 fine is automatically triggered
- Points can reset if you meet your deadlines consistently over a set period
For those joining MTD in April 2026, there’s a soft landing in place. You won’t receive penalty points for late quarterly updates during the 2026/27 tax year. However, this doesn’t apply to the Final Declaration or to late payment penalties, and it won’t extend to those joining from April 2027 onwards.
Practical steps to get ready
Whether you’re in scope now or your start date is still ahead, here’s what to do:
- Check your qualifying income using HMRC’s checker tool to confirm when you need to sign up
- Choose your software early, making sure it covers all your income sources and is on HMRC’s approved list
- Register for MTD through HMRC’s online service using your existing Self Assessment login
- Start keeping digital records now, even before your mandatory date, to make the transition smoother
- Speak to your accountant about how quarterly reporting will change your working relationship and fee arrangement
How Affinity Associates can help
Getting MTD-ready doesn’t have to be complicated, but it does help to have someone in your corner. At Affinity Associates, our accountants and tax advisers work with sole traders and landlords to take the guesswork out of the process, from choosing the right software to managing your quarterly submissions. Contact us to find out how we can help.
Author
Mukund is a founding member of the Affinity Associates Group and has been with the practice for nearly 40 years. After completing his degree in Accounting and Finance, he went on to qualify with both ACCA and ICAEW in 1991. Over the years, he’s built deep expertise in consultancy, tax, business development, and corporate group structures. Mukund is known for helping clients make sense of complex financial challenges and turning them into opportunities for sustainable growth.
