Introduction

Making Tax Digital (MTD) for Income Tax represents a significant shift in how sole traders and landlords manage their tax affairs. This government initiative aims to modernise the tax system by requiring digital record-keeping and more frequent reporting of income and expenses. The move is designed to improve accuracy, reduce errors, and ultimately make tax compliance simpler and more efficient.

From April 2026, MTD for Income Tax will become mandatory for individuals with qualifying income above specified thresholds. This phased rollout will affect many sole traders and landlords, making it essential to understand the requirements and prepare well in advance.

Early preparation is crucial to ensure a smooth transition and to take full advantage of the time-saving benefits that digital record keeping and quarterly reporting offer. In this article, we outline the phased rollout timeline, explain key compliance obligations, and provide practical steps to help you get ready for MTD.

Understanding the Phased Rollout of MTD for Income Tax

The introduction of MTD for Income Tax will be implemented in stages, based on the level of gross income from self-employment and property.

• April 2026: MTD becomes mandatory for individuals whose combined gross income from self-employment and property exceeds £50,000 per tax year. This means if your total income from all trades and property businesses is over this threshold, you must comply from this date.
• April 2027: The income threshold will be lowered to £30,000, bringing more taxpayers into the scope of MTD.
• April 2028 and beyond: The threshold will further reduce to £20,000. Additionally, the government has indicated that partnerships will be required to comply with MTD at a later, yet to be confirmed, date.

HM Revenue & Customs (HMRC) will determine your qualifying income by reviewing your Self Assessment tax return for the previous tax year. It is important to note that the thresholds apply to the total gross income across all your self-employed trades and property businesses combined, not just individual sources.

Key Compliance Requirements Under MTD

To comply with MTD for Income Tax, affected individuals must meet several key obligations:

Digital Record Keeping:
You are required to create, store, and maintain digital records of all income and expenses using MTD-compatible software. This ensures that your records are accurate and readily accessible. Importantly, there must be digital links between your records and submissions to HMRC, which means no manual re-entry of data is permitted.

Quarterly Updates:
Instead of submitting a single annual tax return, you will need to provide HMRC with cumulative summaries of your income and expenses every quarter. These updates must be submitted by the 7th day of the month following the end of each quarter. Different quarter periods may apply, such as standard or calendar quarters, depending on your circumstances. Separate submissions are required for each trade or property business you operate. If errors are identified, you can correct them in subsequent quarterly updates.

End of Year Declaration:
At the end of the tax year, you must file a digital tax return that pre-populates information from your quarterly updates. This declaration allows for adjustments such as disallowing private use expenses, reporting any non-business income, and claiming applicable tax reliefs. The deadline for this final submission remains 31 January, following the end of the tax year, consistent with the current Self Assessment timetable.

Practical Steps for Early Preparation and Voluntary Adoption in 2025

With Making Tax Digital for Income Tax becoming mandatory from April 2026 for many sole traders and landlords, early preparation is essential to ensure a smooth transition. The good news is that voluntary sign-up is already available, allowing you to familiarise yourself with the new processes ahead of time.

Assess Your Qualifying Income
Begin by reviewing your income for the 2024/25 and 2025/26 tax years to determine if and when MTD will apply to you. HMRC will assess your combined gross income from all self-employment and property sources to establish whether you meet the relevant thresholds (£50,000 from April 2026, lowering to £30,000 in April 2027). Understanding your total income across all trades and property businesses is crucial for accurate planning.

Choose Compatible Software
MTD requires digital record-keeping using software that is compatible with HMRC’s systems. Research and select MTD-compliant accounting software that suits your business needs. Consider features that simplify quarterly updates and the end-of-year declaration, such as automatic data linking and error checking. Early adoption of suitable software can reduce the risk of last-minute complications.

Sign Up and Authorisation
You can register for Making Tax Digital for Income Tax now, even though it is not yet mandatory. Signing up early helps you test the system and prepare for the transition. Accountants and agents can also authorise software on behalf of their clients from April 2025, facilitating a smoother changeover. HMRC will write to those required to comply, confirming their start date and guiding them through the sign-up process.

Trial Runs and Voluntary Participation

Participating voluntarily in the public beta and pilot programmes allows you to identify and resolve any issues before the mandatory start date. Early adopters benefit from hands-on experience with quarterly reporting and digital submissions, which can ease compliance burdens later. Both taxpayers and their advisers are encouraged to take advantage of this opportunity.

Educate and Train
Familiarise yourself with the new MTD processes, deadlines, and software functionalities. Quarterly reporting will affect your tax planning and cash flow management, so it is important to adjust your financial practices accordingly. Training and support from professional advisers can help you adapt efficiently and avoid penalties.

What Happens If You Don’t Comply?

Failing to comply with Making Tax Digital requirements can lead to penalties and compliance risks. HMRC has confirmed that non-compliance may result in fines, interest charges, and increased scrutiny. Moreover, late or inaccurate submissions can disrupt your tax affairs and potentially damage your business reputation.

Timely adoption of MTD is therefore essential to avoid these consequences. By preparing early, choosing the right software, and understanding your obligations, you can ensure a seamless transition and maintain full compliance with HMRC’s digital tax regime.

Conclusion

The phased rollout of Making Tax Digital (MTD) for Income Tax marks a fundamental change in how sole traders and landlords manage their tax affairs. Starting from April 2026, individuals with gross income over £50,000 from self-employment and property will be required to maintain digital records, submit quarterly updates, and file a final digital declaration. This threshold will reduce to £30,000 in April 2027 and further to £20,000 in 2028, with partnerships expected to be included at a later date.

Understanding these key compliance requirements and preparing early is essential to ensure a smooth and efficient transition. Digital record keeping and quarterly reporting not only improve accuracy and compliance but also help spread the administrative workload more evenly throughout the year.

How Futurelink Group Can Support Your MTD Journey

As Making Tax Digital for Income Tax becomes mandatory from April 2026, Futurelink Group and its Chartered Accountancy division, is uniquely positioned to help sole traders, SME’s and landlords navigate the changes, assuring compliance and taking the administration burden away.

MTD-Ready Payroll and Accountancy Services
We have already equipped 100% of our clients with MTD-compatible platforms, ensuring seamless compliance with digital record-keeping and quarterly submissions.

Expert Guidance and Support
Our experienced team offers tailored advice on MTD requirements, helping you understand your obligations and avoid penalties. We assist with registration for MTD and the setup of compliant digital systems.

Comprehensive Contractor and Landlord Solutions
From payroll to accountancy, we provide services including PAYE umbrella payroll, CIS payroll, gross payment solutions, and full accountancy support for personal service companies and sole traders. This integrated approach simplifies your tax affairs under MTD.

Smart Tax Planning
We help you maximise your earnings and manage cash flow effectively through proactive tax planning aligned with MTD’s quarterly reporting cycles.

Resource Hub and Ongoing Updates
Access our extensive resource centre for the latest industry news, IR35 compliance updates, and MTD guidance to keep you informed throughout the transition.

Take the Next Step Today

Preparing early for MTD will save you time, reduce errors, and improve your financial control. Contact Futurelink Group to:

• Assess your MTD readiness
• Choose and implement the right digital software
• Get expert help with quarterly updates and year-end declarations
• Benefit from a trusted partner with nearly 30 years of payroll and accountancy expertise

Let Futurelink Group take the complexity out of Making Tax Digital, so you can focus on growing your business with confidence.