There has been a change in how certain sole traders and landlords report income to HMRC. From 6 April 2026, Making Tax Digital for Income Tax means you no longer file just one return each year. Instead, you keep digital records and send updates regularly.
This has raised a lot of questions. What do you need to submit? How often? And what does it mean for your daily records? This blog explains it all in simple terms.
What is Making Tax Digital for Income Tax?
For decades, Self Assessment has followed a simple pattern. You earned money, kept records, and filed a return once a year.
MTD for Income Tax has moved away from that model. The new system requires sole traders and landlords to maintain digital records on an ongoing basis and submit quarterly updates to HMRC. After the four updates, a final Self Assessment tax return is completed by 31 January to finalise the year’s figures and any tax liability.
It sounds simple on paper. In practice, it requires a different approach to record keeping from day one of each tax year, not just in the weeks before a deadline.
Who is affected?
Income thresholds
MTD for Income Tax is not being introduced all at once. It is being phased in based on gross income before expenses:
- From 6 April 2026: Those earning over £50,000
- From April 2027: Those earning over £30,000
- From April 2028: Those earning over £20,000
About 2.9 million people will eventually fall into scope. What is striking is that surveys put awareness at around 30%. That means the majority of people affected have no idea this is happening, which is a problem when HMRC’s penalty rules are already in motion.
What income is included?
Only self-employment and property rental income counts when HMRC calculates whether you meet the threshold. Employment income from a salaried job, pension income and dividends are all excluded. So a full-time employee with a rental property earning £55,000 in rent would be in scope from this year, even if they have never filed a complex tax return before.
Limited companies and general partnerships are not brought in under this legislation. It applies to sole traders and individual landlords only.
What does the process actually look like?
Quarterly updates
Under MTD, each quarter involves sending HMRC a summary of your income and expenses. The first quarter of the 2026/27 tax year runs from 6 April to 5 July 2026, and the update must be submitted by 7 August 2026. The remaining three quarters follow at roughly three-month intervals throughout the tax year.
These updates are not four separate tax bills or four full returns; they are cumulative summaries that give HMRC a running view of your finances. The actual tax calculation happens at year end, not after each quarter.
The final Self Assessment tax return
Once all four quarterly updates are in, the final Self Assessment tax return ties everything together. This is where you claim reliefs and allowances, make any necessary adjustments, and confirm your overall tax position for the year. The deadline is 31 January, the same date that Self Assessment filers have always worked towards.
Digital record keeping
One of the less discussed but equally important requirements is that your records must be kept digitally throughout the year. The habit of collecting receipts in a drawer and sorting them out later does not fit the new system. Each quarterly update needs to be based on current, accurate records, which means the admin has to happen little and often rather than all at once.
Why has HMRC made this change?
There are two core reasons behind MTD for Income Tax. The first is accuracy. Annual returns filed months after the relevant tax year, often from incomplete records or rough estimates, produce figures that are not always reliable. Reporting more frequently from records that are maintained in real time should reduce the volume of errors.
The second reason is the tax gap. HMRC estimates there is a substantial difference each year between the tax that should be collected and the tax that actually comes in. A large portion of that gap is attributed to self-employed taxpayers. More regular reporting gives HMRC a more accurate and timely view of income, and that makes it harder for discrepancies to go unnoticed.
Penalties for missing deadlines
How the points system works
HMRC has moved away from automatic fixed fines and introduced a points-based system for MTD for Income Tax. This works along the same lines as that introduced for MTD for VAT:
- Miss a quarterly or final Self Assessment tax return deadline and you receive one penalty point
- Accumulate enough points and a financial penalty is charged
- Sustained compliance over time reduces your points balance
What about the first year?
HMRC has offered some breathing room for the first year. Penalty points for MTD for IT will not be issued for late quarterly updates during 2026/27, which gives people space to adjust. That said, it is not an invitation to put things off. The sooner good habits are in place, the less stressful the second year becomes.
However, the final Self Assessment tax return, and tax payment deadlines carry no such leniency. Missing any of these from year one will result in penalties regardless.
Do you need an accountant?
Quarterly deadlines, digital record keeping and a points-based penalty system make this a far more involved process than filing one return a year. Most sole traders and landlords already have enough on their plates. Adding a new layer of compliance on top of that is where things start to slip.
A good accountant takes that pressure off:
- Your records are kept accurate and HMRC-compliant throughout the year, not just tidied up before a deadline
- Quarterly updates are filed correctly and on time, every time
- Anything unusual in your figures gets picked up early rather than discovered in January
- You claim every relief and allowance you are entitled to
- Your year-end tax payment is planned for, so it never catches you off guard.
At 3E’S Accountants, we work with sole traders, landlords and growing businesses across the UK, offering bespoke accounting and financial solutions built around making businesses productive, profitable and powerful. If MTD has raised questions about your situation, get in touch, and we will take it from there.
