The change affects taxpayers with more than £50,000 in qualifying income from self-employment and property. The quarterly update is not a tax return, but a digital summary of income and expenses that must be submitted to HM Revenue and Customs (HMRC) through approved software.
New Digital Reporting Rules Introduce Quarterly Updates for Taxpayers
The first quarterly update covers the first three months of the tax year and must be completed by those now within the scope of Making Tax Digital. According to HMRC, more than 864,000 sole traders and landlords are expected to complete this first stage of digital reporting.
The system requires affected taxpayers to keep digital records and send regular summaries of their financial information. The quarterly submission does not replace the traditional Self Assessment tax return, which remains due by 31 January 2027 for the relevant tax year.
Once a quarterly update has been submitted, taxpayers can view an estimate of their potential tax bill. HMRC said this is intended to help people plan their finances during the year rather than waiting until the annual return process.
Taxpayers who have not yet registered can still complete the process through GOV.UK. HMRC also provides access to compatible software information, guidance materials and webinars. People who use an accountant or tax agent can ask them to complete the registration process on their behalf.
Craig Ogilvie, HMRC’s director of Making Tax Digital, said the introduction represented a major change for the tax system. “Hundreds of thousands of sole traders and landlords are now keeping digital records and will be sending their first quarterly update in the coming weeks,” he said, according to HMRC.
First-Year Approach Includes Temporary Relief from Quarterly Update Penalties
Although the first deadline is approaching, HMRC has confirmed that taxpayers will not receive penalty points for missing quarterly updates during the first year of the scheme. The temporary approach applies to late quarterly submissions under Making Tax Digital for Income Tax.
The points-based penalty system will apply from the second year onwards. Under the rules, each missed quarterly deadline results in one penalty point. A fixed £200 fine is issued when a taxpayer reaches four points. Points can expire after a period of continued compliance.
The rules for other tax responsibilities remain unchanged. Late Self Assessment returns and unpaid tax can still lead to penalties under existing arrangements.
The digital tax system will gradually expand to more taxpayers. From April 2027, it will apply to those with qualifying income above £30,000, before extending to those earning more than £20,000 from April 2028.
Some approved software used for quarterly reporting includes HMRC Assist, a digital support feature designed to provide personalised feedback and highlight possible mistakes before submission. According to HMRC, taxpayers remain responsible for ensuring that the information they provide is accurate.
The first quarterly update deadline represents the beginning of a new reporting process for hundreds of thousands of self-employed workers and property owners. While the annual tax return system remains in place, those affected by the new rules must now manage their records through digital reporting throughout the tax year.
