A significant shift is underway for sole traders and landlords in the UK as HM Revenue and Customs (HMRC) introduces new rules that will require them to use Making Tax Digital (MTD) for Income Tax. The reform, set to take effect in April 2026, will mandate electronic record-keeping and quarterly updates for those with qualifying income exceeding £50,000.
In a move aimed at modernising the UK’s tax system, HMRC’s latest initiative is designed to streamline reporting processes, save time for businesses, and provide a more transparent view of tax liabilities. This transformation aligns with broader government plans to support economic growth and ensure that everyone contributes their fair share.
Phased Introduction of MTD
The Making Tax Digital programme, which has already been implemented for VAT, is now extending to Income Tax. Beginning April 2026, sole traders and landlords who earn over £50,000 will be required to maintain digital records and submit quarterly updates on their income and expenditure to HMRC.
According to HMRC, around 780,000 self-employed individuals and landlords will be affected initially, with an additional 970,000 expected to join in April 2027. The programme will then extend further, with the threshold lowering to £30,000 in 2027 and £20,000 in 2028, ensuring more taxpayers will gradually be brought into the digital fold.
By adopting MTD, these businesses will no longer face the stress of last-minute tax return preparations. The introduction of quarterly reporting will also allow them to manage their finances in real-time, reducing the chance of errors in tax records and improving the accuracy of tax filings.
Benefits for Businesses and the Economy
The new MTD rules come with several key benefits, both for taxpayers and the broader economy. According to Craig Ogilvie, HMRC’s Director of Making Tax Digital, the change is set to be the “most significant change” in the Self Assessment system since its introduction in 1997.
By reducing the manual effort required to collate records, businesses and landlords will be able to focus more on growth activities. HMRC believes the digital system will reduce mistakes and improve efficiency, with evidence from the MTD for VAT programme indicating that businesses have benefited from more accurate record-keeping.
The phased approach allows businesses to prepare for the change gradually. Additionally, HMRC offers a testing programme for those affected, which will help them familiarise themselves with the new requirements ahead of time, providing support for smooth adaptation.
