Making Tax Digital for Income Tax

Sole traders and landlords, does your 2025-26 tax return show total income from trading and / or rental above £30,000 before expenses? If the answer is yes, you will soon be required by law to comply with the requirements of Making Tax Digital for Income Tax (MTD IT).

Sole traders and landlords with combined gross income from trading and/or property (‘qualifying income’) over £50,000 have been caught in the MTD IT net since April 2026. Those with qualifying income above £30,000 will be brought in from April 2027 and the start date for incomes of £20,000 or more is April 2028.

To comply you need to use software, apps or spreadsheets to keep digital records; file quarterly summaries of your income and expenses using MTD-compliant software; and complete a final annual submission of taxable profit for the accounting period at the end of the tax year. This will replace the current self assessment tax return.

A Quarterly Update (QU) is a summary of income and expenses from your digital records. You will not be required to make accounting or tax adjustments to the figures unless you choose to. If you discover an error in the previous quarter’s update you can correct it in the next one, as QUs are cumulative. The deadlines for submitting QUs are 7^th August, 7^th November, 7^th February and 7^th May each year.

The first QU deadline for the 2026 cohort has now passed, but don’t worry if you have missed it. Because the updates are cumulative you can simply move on to the second QU to fulfil your obligations. Ordinarily, missing a QU will result in penalty points and eventually fines, however HMRC has waived the QU late-filing penalties for new joiners the 2026-27 tax year. Points and penalties will start to bite from April 2027 for the first cohort.

As announced at Budget 2026, the ‘soft landing’ points and penalties waiver for the first year will be extended to those joining MTD IT in 2027-28. This second cohort will start to incur penalties from April 2028.

If you are trading as a limited company or a partnership, you are off the hook and will not be required to join MTD IT.

This is undoubtedly the biggest shake-up to the UK income tax system in the last thirty years and will eventually apply to almost everyone who receives income from self-employment and/or property. At WSM, we have been preparing to help our clients navigate the changes for some time, so contact us without delay to discuss what you need to do to get your business MTD-ready.