What sole traders and landlords need to know about Making Tax Digital with one year to go

Almost 800,000 high-earning sole traders and landlords have around a year left to prepare for a tax shake-up in how they report their income to the taxman.

HMRC is looking to shift more people to report their taxes online through a system called Making Tax Digital (MTD).

Businesses registered for VAT are already using the system but it will be extended to sole-traders and landlords from 6 April 2026.

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The idea is that rather than waiting until self-assessment season to file their accounts, users will instead have to use the MTD system to keep digital records and submit quarterly summaries of their income and expenses to HMRC.

James Murray, exchequer secretary to the Treasury, said: “MTD for income tax is an essential part of our plan to transform the UK’s tax system into one that supports economic growth.

“By modernising how people manage their tax, we’re helping businesses work more efficiently and productively while ensuring everyone pays their fair share.”

Here is what you need to know about MTD.

What is Making Tax Digital?

MTD was first introduced for VAT-registered businesses in April 2019 – those with a taxable turnover of more than £90,000 - with all qualifying businesses required to join from April 2022.

Businesses or their accountants must use software that works with MTD, helping them keep digital records and submit updates every quarter, bringing the tax system closer to real-time.

It is being rolled out for income tax from next year, which should stop the last-minute rush of finding documents to file self-assessment tax returns.

All the data will already be online and users will have to pay their tax bill by the 31 January deadline.

Who does Making Tax Digital apply to?

MTD currently only applies to VAT-registered business.

But from 6 April 2026, the system must also be used by sole traders and landlords with incomes above £50,000, to record and report income.

The rules will also be extended from April 2027 those with annual business or property income of more than £30,000.

Around 780,000 self-employed individuals and landlords will be required to use MTD for income tax from April 2026, with a further 970,000 joining from April 2027, HMRC said.

This will mean reporting your gross income from self-employment and property on a quarterly basis to HMRC.

Rodolphe Malaguti, head of product strategy and transformation at business support platform Conga, said: “Digital transformation offers many advantages, but that does not mean it is easy to define, plan or execute. When it comes to an area as critical as the tax process, there are several issues which MTD must overcome before it can deliver effective digital change.

“For example, senior leaders on the project must firstly examine the current data-sharing processes and work towards establishing a unified system to simplify data sharing and communication across the various departments of HMRC.

"After all, having digital records that can be updated periodically will be helpful for many, but only if the processes are seamless and there are no issues with data processing when it comes to filing important tax information.”