Making Tax Digital: What Sole Traders and Landlords Need to Know

The way many people report their income to HMRC has changed significantly with the introduction of Making Tax Digital (MTD) for Income Tax. If you're a sole trader or landlord, it's important to understand whether these changes apply to you and how you can prepare.

In this guide, we explain what Making Tax Digital is, who it affects, and what you need to do to stay compliant.

What is Making Tax Digital?

Making Tax Digital (MTD) is HMRC's initiative to modernise the UK's tax system by replacing paper-based and annual reporting with digital record keeping and more frequent submissions.

Instead of completing just one Self Assessment tax return each year, eligible taxpayers are now required to:

• Keep digital records of their income and expenses.
• Use HMRC-compatible software.
• Submit quarterly updates to HMRC.
• Complete a final end-of-year declaration.

The aim is to reduce errors, improve the accuracy of tax reporting, and help individuals manage their tax obligations throughout the year.

Who Does It Apply To?

Making Tax Digital for Income Tax currently applies to:

• Sole traders.
• Landlords.
• Individuals with a combined gross income of more than £50,000 from self-employment and/or property income.

It's important to note that HMRC uses gross income, not profit, when determining whether you fall within the rules.

The scheme will expand in the coming years:

• From April 2026 – gross income over £50,000.
• From April 2027 – gross income over £30,000.
• From April 2028 – gross income over £20,000.

What Will Change?

If you're affected by Making Tax Digital, your annual reporting process will become more regular throughout the year.

You'll need to:

• Maintain digital accounting records.
• Submit an update to HMRC every three months.
• Review and finalise your tax position after the end of the tax year.
• Continue paying any tax owed by the usual payment deadlines.

Although quarterly updates increase the number of submissions, they are intended to provide a clearer picture of your tax position throughout the year rather than leaving everything until January.

Choosing the Right Software

Under Making Tax Digital, records must be kept digitally using software that can communicate directly with HMRC.

Many bookkeeping platforms already support MTD, while businesses that prefer using spreadsheets can often continue doing so by using compatible bridging software.

When selecting software, consider:

• Ease of use.
• Cost.
• Features such as bank feeds and receipt capture.
• Compatibility with HMRC requirements.

Choosing suitable software early can make the transition much smoother.

Key Deadlines

Once enrolled in Making Tax Digital, you'll need to remember several reporting deadlines each year.

Quarterly updates are generally due:

• 7 August
• 7 November
• 7 February
• 7 May

Following the fourth quarterly update, you'll submit your final declaration before the usual Self Assessment deadline. Missing deadlines could result in penalties, so it's worth setting reminders well in advance.

Are There Any Exemptions?

Some individuals may qualify for an exemption from Making Tax Digital.

Examples include people who:

• Cannot reasonably use digital services due to disability.
• Have limited or no internet access.
• Meet certain other criteria accepted by HMRC.

Applications are assessed individually, so if you believe you may qualify, it's advisable to contact HMRC or seek professional advice.

How We Can Help

Moving to quarterly digital reporting may feel like a significant change, particularly if you've always managed your records manually.

Our team can help you:

• Determine whether Making Tax Digital applies to you.
• Choose suitable accounting software.
• Set up digital bookkeeping processes.
• Prepare and submit quarterly updates.
• Ensure you remain compliant with HMRC requirements.

By preparing early, you can avoid unnecessary stress and make the transition to Making Tax Digital as straightforward as possible.

If you'd like advice on how Making Tax Digital affects your business or property income, please get in touch with our team. We're here to help you navigate the new requirements with confidence.

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