Making Tax Digital has been on the horizon for several years, but for many sole traders and landlords, it’s about to become very real.
From April 2026, the way millions of people report income to HMRC will fundamentally change. This isn’t just a new online form or a small compliance tweak. It’s a structural shift in how records are kept, how often information is submitted, and how business owners engage with their numbers.
If you’re a sole trader, landlord or small business owner, here’s what’s changing — and how to prepare properly.
A Quick Recap: What Is Making Tax Digital?
Making Tax Digital (MTD) is the Government’s initiative to modernise the UK tax system. The long-term aim is to reduce errors, improve accuracy and move towards a fully digital reporting framework.
Most VAT-registered businesses above the VAT threshold are already familiar with MTD. They must keep digital records and submit VAT returns using compatible software rather than typing figures directly into HMRC’s website.
The next phase is Making Tax Digital for Income Tax (MTD for ITSA) — and this is where many sole traders and landlords will be affected.
What’s Changing From April 2026?
From April 2026, MTD for Income Tax will apply to sole traders and landlords with qualifying gross income over £50,000. A year later, from April 2027, it will extend to those with gross income over £30,000.
A key point that causes confusion is that the threshold is based on gross income, not profit. That means turnover before expenses. For landlords, it’s rental income before deducting costs.
If your trading and property income combined exceed the threshold, you will fall within the rules — even if neither source alone passes it.
Under the new system, affected individuals will need to keep digital records using MTD-compatible software and submit quarterly updates to HMRC. At the end of the tax year, they will complete an End of Period Statement and a Final Declaration, effectively replacing the current Self Assessment return.
In practical terms, instead of reporting once a year, you will report income and expenses throughout the year and then finalise your position at year end. It’s not just a new form. It’s a new rhythm.
Who Needs to Pay Attention?
If you currently complete a Self Assessment tax return and your gross trading or rental income is above £50,000, you should expect to come within scope from April 2026.
This includes:
- Sole traders operating in any sector
- Individuals with rental property portfolios
- Those with a mix of business and property income
Limited companies are not yet included under MTD for Corporation Tax, although this is expected in the future. For now, the changes apply specifically to unincorporated businesses and landlords.
Even if you’re below the threshold today, it’s sensible to monitor your income levels. Growing businesses may find themselves brought into scope sooner than expected.
What This Means in Practice
For some businesses, MTD will feel like a natural progression. For others, it will require a significant change in habits.
If you currently update your bookkeeping once a year in January, that approach simply won’t work under quarterly reporting. Records will need to be kept consistently and accurately throughout the year.
If you rely on spreadsheets or paper records, you’ll need to review whether your current system meets HMRC’s digital requirements. While some spreadsheets can be adapted using bridging software, many businesses find that moving to cloud accounting software provides a more reliable long-term solution.
There is also a behavioural shift involved. A common reaction is, “My accountant will handle it.” While we absolutely manage submissions and compliance, MTD increases the frequency of reporting. That means business owners must engage with their financial records more regularly.
The positive side is improved visibility. Businesses that maintain up-to-date digital records often gain clearer insight into profitability, tax exposure and cash flow. What feels like extra admin at first can actually strengthen financial control.
Common Misunderstandings About MTD
One of the biggest misconceptions is that MTD won’t apply if profits are modest. Because the threshold is based on turnover, not profit, many people who consider themselves “small” will still be caught.
Another misunderstanding is that quarterly updates will mean paying tax quarterly. At present, the change relates to reporting rather than payment dates. However, more frequent reporting will make tax liabilities more visible throughout the year, which may affect how you budget.
Some also assume that nothing needs to be done until 2026. In reality, leaving preparation until the final months could create unnecessary stress. Software needs to be set up properly. Records may need tidying. Processes often need refining.
Early transition makes the process far smoother.
The Risks of Delaying Preparation
Businesses that postpone preparation may face a steep learning curve just as the rules become mandatory. Disorganised records can lead to inaccurate submissions, and rushed software implementation can cause frustration.
There’s also a cost consideration. Emergency bookkeeping clean-ups and last-minute system changes are typically more expensive than a planned, gradual transition.
Most importantly, leaving things too late removes flexibility. Adapting to digital reporting is easier when done steadily over 2025 rather than under pressure in early 2026.
How to Prepare During 2025
Preparation starts with awareness. Review your latest tax return and current year income to confirm whether you are likely to exceed the £50,000 threshold. If you’re close, assume you’ll need to comply.
Next, assess your record-keeping system. Are your accounts updated regularly? Are business and personal finances clearly separated? Do you have a dedicated business bank account? These foundations make quarterly reporting far more manageable.
Finally, consider whether your current software — or lack of it — is suitable for MTD. Moving to compliant software during 2025 allows time to become comfortable with the system before reporting becomes mandatory.
How AK Tax Can Support Your MTD Transition
At AK Tax, we’re already helping clients prepare for the next phase of Making Tax Digital. Our focus is not simply on meeting HMRC requirements, but on building digital systems that genuinely support better financial management.
We can review whether you’ll be affected, recommend suitable MTD-compatible software, assist with setup and migration, and provide ongoing bookkeeping or training support where needed. We also monitor HMRC developments closely, so you remain informed as guidance evolves.
Preparing now means avoiding disruption later.
If you’re unsure how Making Tax Digital will affect you — or you’d like clarity on the next steps — we’re here to help.
