The UK’s tax authority, HMRC, has issued a stark warning regarding the new Making Tax Digital (MTD) for Income Tax rules, set to affect millions of self-employed individuals and landlords. As the deadline for compliance draws nearer, HMRC expects a significant portion of taxpayers to miss the mark, raising concerns about the readiness of the tax system for the upcoming changes.
From April 2026, the MTD for Income Tax will require those with income from self-employment or property to submit quarterly updates of their income and expenses to HMRC. With an estimated 42% of taxpayers affected, the new digital requirements will drastically alter the way millions of people file taxes in the UK.
The Impact of MTD for Income Tax
According to HMRC’s latest figures, 2,916,000 taxpayers will need to comply with the new MTD rules by 2026. This includes individuals with self-employment or property income exceeding £20,000, who must use MTD-compatible software to maintain digital records and submit quarterly updates. Failure to comply with these regulations could lead to penalties or administrative burdens.
The change is a significant shift in the way tax filing is done. Currently, self-employed individuals and landlords typically file annual tax returns. Under MTD, however, taxpayers will need to report their income and expenses every three months. This change is expected to reduce errors, streamline the tax process, and improve accuracy for both taxpayers and HMRC.
Despite the clear benefits, HMRC has expressed concern over the ability of many to comply with the new system. An estimated 58% of affected taxpayers may struggle with the new rules, particularly in the early stages of implementation. The transition to digital filing may be challenging for some, particularly those without digital literacy or access to compatible software. As a result, HMRC is encouraging taxpayers to prepare well in advance to avoid issues down the line.
Phased Rollout and Long-Term Goals
The introduction of MTD for Income Tax will be gradual, with full compliance expected by 2028. Initially, the new rules will apply to those with gross income over £50,000 from self-employment or property, starting in April 2026. By April 2027, the threshold will lower to £30,000, and by 2028, it will include individuals earning more than £20,000.
While this phased rollout is designed to ease the transition, it remains clear that many taxpayers may still face challenges. HMRC’s current estimates suggest that, by 2028, 81% of those affected by MTD will be self-employed individuals, with a smaller portion of landlords also required to comply. However, according to the Institute of Chartered Accountants in England and Wales (ICAEW), more than half of landlords may not meet the deadlines initially, highlighting the complexities involved for those unfamiliar with digital tax processes.
