MTD for Income Tax: What UK Sole Traders and Landlords Need to Know

If you have earnings from self-employment or rental property, the way you report income to HMRC is changing, even if your current system works well.

Making Tax Digital (MTD) for Income Tax introduces regular digital reporting instead of one annual tax return. This change will affect many sole traders and landlords across the UK. Let’s explore what MTD for Income Tax is, who it applies to, and what you need to do to ensure full compliance.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax (often shortened to MTD ITSA) is a new HMRC system that changes how income is reported. Instead of submitting one Self Assessment tax return after the tax year ends, you will keep your records digitally. You will send updates to HMRC throughout the year using approved software.

The aim is to reduce mistakes and give individuals a clearer picture of their tax position as they go. This way, you won't face an unexpected bill later. Importantly, MTD does not change how much tax you pay or when payments are due — it only changes how information is reported.

Who does MTD for Income Tax apply to?

MTD for Income Tax applies to UK sole traders and landlords once their income exceeds certain thresholds. From 6 April 2026, the rules will apply if your total income from self-employment and/or property is over £50,000 per year. From 6 April 2027, this threshold reduces to £30,000.

These thresholds are based on gross income, not profit. This means landlords with relatively modest rental profits may still fall within MTD if their rental income is high enough. If your income is below £30,000, you will continue using the current Self Assessment system for the time being.

What actually changes under MTD?

Currently, many sole traders and landlords keep records in spreadsheets, notebooks, or basic software. They submit one tax return each year. Under MTD, records must be kept digitally. Income and expenses will be reported to HMRC on a quarterly basis.

You will send four updates during the tax year, followed by a final declaration that confirms your figures and applies any allowances or reliefs. These quarterly updates are summaries rather than full tax returns. You are not required to pay tax each quarter.

What records do I need to keep?

Under MTD, you must keep clear digital records of your income and expenses. These records should show enough detail to support the figures you report to HMRC. They must be kept up to date throughout the year.

You will need to record:

• Income received from your business or rental property

• Allowable expenses related to that income

• Dates and amounts for each transaction

• The type of expense, such as repairs, travel, or office costs

  
  

Receipts do not need to be submitted to HMRC, but you must retain accurate records in case HMRC asks to review them.

What software will I need?

MTD submissions must be made using HMRC-approved software. Information can no longer be entered directly into HMRC’s website. Most sole traders and landlords will use cloud accounting software. Some may continue using spreadsheets, provided they are linked to suitable bridging software.

Choosing the right software is important. It affects how easy it is to keep records up to date and submit quarterly updates on time. The best option depends on your income level, the number of transactions you have, and whether you earn income from self-employment, rental property, or both.

We can help you select and set up MTD-compatible software that suits your situation. We ensure it is configured correctly and provide ongoing support to make sure your quarterly submissions are accurate and compliant. This helps reduce errors, missed deadlines, and unnecessary stress as MTD comes into effect.

Is MTD for Income Tax mandatory?

Yes, MTD for Income Tax is mandatory. Once you are within the income thresholds, HMRC expects you to keep digital records and submit quarterly updates using approved software. Penalties can apply for late submissions, missing updates, or poor record keeping.

Many people ask whether an accountant can deal with MTD on their behalf. The answer is yes. Through our services, we can support you with MTD for Income Tax. We can set up suitable software, review or maintain your digital records, submit quarterly updates to HMRC, and complete the final declaration at the end of the tax year.

How will this affect your tax bill?

MTD does not change tax rates, allowable expenses, or payment deadlines. What it does change is visibility. By submitting regular updates, you will have a clearer idea of how your business or rental income is performing. You will also see what your tax position may look like before the year ends.

This can make budgeting and cash flow planning much easier.

When should you start preparing?

Even if MTD does not apply to you yet, preparing early is sensible. It can prevent problems later on. Small changes now can make a big difference when the rules become mandatory.

Good steps to take include:

• Moving away from paper records

• Keeping income and expenses updated regularly

• Using suitable accounting software

• Getting advice if your income is close to the threshold

  
  

Those who prepare in advance usually find the transition far less stressful.

Final thoughts

Making Tax Digital for Income Tax is a significant change for UK sole traders and landlords. However, it does not need to be complicated. With clear digital records and the right systems in place, most people adapt quickly.

Preparing early is the best way to stay compliant and avoid unnecessary stress.

If you earn income from self-employment or rental property and want clarity on how MTD for Income Tax applies to you, get in touch. We can provide a professional review of your situation and help you get set up correctly from the start.

Understanding the Benefits of MTD

Making Tax Digital is not just about compliance; it also offers several benefits. By transitioning to a digital system, you can streamline your financial processes. This can save you time and reduce the risk of errors.

Digital records allow for easier tracking of income and expenses. You can access your financial data anytime, anywhere. This flexibility can help you make informed decisions about your business or rental property.

Moreover, regular updates can help you stay on top of your tax obligations. You will have a clearer understanding of your financial position throughout the year. This can lead to better financial planning and management.

Conclusion

In conclusion, MTD for Income Tax represents a shift in how we manage our financial records. While it may seem daunting, embracing this change can lead to improved efficiency and clarity in your financial dealings.

By preparing early and seeking the right support, you can navigate this transition smoothly. Remember, we are here to help you every step of the way.