Making Tax Digital for Income Tax 2026: Guide for Sole Traders and Landlords

PHS Team

06 Oct, 2026

Tax reporting is changing, and eligible sole traders and landlords need to be ready. Making Tax Digital for Income Tax is changing how income and expenses are recorded and reported to HMRC. Instead of waiting until the end of the year, affected taxpayers will need to keep digital records and send regular updates. 

The rules are being introduced in phases from April 2026. But who needs to follow the rules, when do they start, and what exactly needs to be reported?

If you are self-employed or receive rental income, understanding the new requirements can help you prepare for digital record keeping, quarterly updates and year-end reporting.

What Is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) for Income Tax is an HMRC system that changes how sole traders and landlords manage their taxes. Instead of reporting income once a year, they will keep digital records and send regular updates to HMRC.

Instead of relying mainly on one annual tax return, affected taxpayers will need to:

• Keep digital records of business or property income and expenses.
• Send quarterly updates to HMRC.
• Submit a year-end tax return through MTD-compatible software.
• Pay any tax due by the relevant deadline.

The actual rules for calculating taxable profits are not generally changing. The main change is how income and expenses are recorded and reported to HMRC.

Who Will Be Affected by Making Tax Digital? 

Making Tax Digital for Income Tax will affect self-employed individuals and landlords whose annual gross income from self-employment, property, or both is above the relevant threshold. The rules are being introduced in stages from April 2026.

The thresholds will reduce over the next few tax years:

The threshold is based on gross income, not profit. This means you look at your total sales or rental income before deducting business expenses.

For example, if a sole trader earns £55,000 in sales but has £30,000 in expenses, their gross income is still £55,000. Therefore, they would fall above the £50,000 threshold for the first phase of MTD.

Only income from self-employment and property counts towards the MTD threshold. Other income, such as employment income, pensions, savings interest and dividends, is not included.

Some people may also be exempt from MTD because of their personal circumstances. If you think you may be exempt, check the latest HMRC guidance before deciding what action to take.

Making Tax Digital for Sole Traders

Making Tax Digital for sole traders means eligible self-employed individuals must maintain digital records and send quarterly updates to HMRC.

For example, a sole trader with qualifying income above £50,000 based on their 2024/25 tax return needs to follow the rules from 6 April 2026, unless an exemption applies.

Digital records should include relevant information about income and expenses. Compatible software can then use these records to prepare quarterly updates.

It is important to remember that MTD does not change the basic tax calculation rules for self-employed people. The main change is the frequency and digital method of reporting.

Making Tax Digital for Landlords

Making Tax Digital for landlords applies to individuals who receive qualifying property income above the relevant threshold.

Landlords need to keep digital records of rental income and allowable expenses and send quarterly updates for their property income.

If a landlord owns several UK rental properties, the income and expenses are generally treated as one UK property business for MTD purposes. However, separate quarterly updates may be required for different sources, such as UK and foreign property income.

Using a letting agent does not automatically remove the landlord's MTD responsibilities. The landlord still needs to make sure the required information is available in digital form and reported correctly.

How Does Making Tax Digital for Income Tax Work?

The process can be divided into three main stages.

1. Keep Digital Records

You need to record your business or property income and expenses digitally using MTD-compatible software or an appropriate digital record-keeping system.

The records should be kept up to date so that quarterly information can be prepared accurately.

2. Send Quarterly Updates

Every three months, you send a summary of your income and expenses to HMRC through compatible software.

For the standard tax-year reporting periods, the deadlines are generally:

Each quarterly update covers the income and expenses from the beginning of the tax year up to the end of that reporting period.

If you have more than one source of qualifying income, such as self-employment and property income, you may need to submit separate updates for each source.

3. Complete the Year-End Process

Quarterly updates do not replace the need to finalise your tax position.

At the end of the tax year, you need to make any required adjustments, add other relevant taxable income and complete the year-end tax return through your software.

For example, the MTD end-of-year tax return for 2026/27 will generally need to be submitted by 31 January 2028.

Making Tax Digital for Income Tax Self Assessment

Making Tax Digital for Income Tax Self-Assessment changes how eligible sole traders and landlords report their income to HMRC.

Instead of reporting business or property income only once a year, they will need to:

• Keep digital records of income and expenses.
• Send quarterly updates to HMRC.
• Complete a final year-end declaration.
• Use MTD-compatible software to manage and submit their tax information.

MTD does not completely replace Self Assessment. You may still need to report other income, gains or tax information that is not covered by your MTD records.

The main change is that eligible taxpayers will manage their business or property tax information digitally and provide updates to HMRC throughout the year.

What Are the Benefits of Making Tax Digital?

MTD is designed to make tax reporting more digital and regular. For taxpayers, keeping records throughout the year can make it easier to understand business performance and prepare information for HMRC.

Some potential benefits include:

• More organised records: Income and expenses can be stored digitally in one system.
• Regular reporting: Quarterly updates provide a more regular view of reported income and expenses.
• Better visibility: Software may provide an estimate of the tax position after quarterly updates.
• Less year-end administration: Keeping records throughout the year can make year-end reporting easier.
• Easier accountant collaboration: Digital records can make it easier to share relevant information with an accountant or tax adviser.

HMRC notes that quarterly updates can also provide an estimate of the tax bill through compatible software or HMRC online services.

How to Prepare for Making Tax Digital for Income Tax

If you will be affected by MTD, preparing early can make the transition easier.

Follow these steps:

1. Check your qualifying income: Review your self-employment and property income to determine when the rules apply.
2. Check your start date: Your MTD start date depends on the relevant tax year's qualifying income.
3. Choose compatible software: Make sure your software supports the required MTD functions.
4. Move to digital records: Start recording income and expenses digitally.
5. Review your expenses: Make sure business and property expenses are categorised correctly.
6. Understand quarterly deadlines: Add the reporting dates to your calendar.
7. Speak to an accountant if needed: Professional advice can help if you have multiple income sources or more complex tax affairs.

Preparing for MTD can be easier with the right records and guidance. PHS Associates can help sole traders and landlords understand their MTD responsibilities, organise their tax records and stay prepared for upcoming reporting requirements.

If you are unsure whether MTD applies to you or need help managing your tax obligations, contact us on 0208 8611685 or email info@phs-uk.co.uk  for professional accounting and tax support. 

Conclusion

Making Tax Digital for Income Tax is a significant change for eligible sole traders and landlords. Instead of managing tax information mainly at the end of the year, affected taxpayers need to maintain digital records and report information to HMRC throughout the year.

Checking your income threshold, understanding your start date and choosing suitable software are important first steps. Preparing your records early can also make quarterly reporting and year-end tax filing easier.

For the latest requirements, always check the current HMRC guidance, as MTD rules and reporting requirements may change.

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