Making tax digital for income tax for sole traders and landlords

I’m sure I’m not the only accountant to be seeing an increase in queries about Making Tax Digital for income tax. In April 2026, sole traders, landlords and limited company directors who draw an income above £50K a year will be impacted. Recently, one of our clients asked, “Do I really need to submit tax returns four times a year now? I can barely manage once!”

This conversation is happening more and more frequently at Adams Accountancy, so I thought it was time to clear up some of the confusion surrounding Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA).

What exactly is Making Tax Digital for Income Tax?

Making Tax Digital is HMRC’s initiative to modernise the UK’s tax administration. You might already be familiar with MTD for VAT, which has been in place for a few years now. MTD for Income Tax is the next phase, affecting how sole traders and landlords report their earnings to HMRC.

In simple terms, it’s replacing the annual Self-Assessment tax return with a new digital system that requires:

• Keeping your business records digitally using MTD-compatible software
• Sending quarterly updates to HMRC
• Submitting an End of Period Statement after the tax year ends
• Making a final declaration confirming all your income

When do I need to worry about this?

The rollout for MTD for Income Tax has been delayed several times (which is actually good news, giving everyone more time to prepare). Here’s the current timeline:

• From April 2026: If your combined income from self-employment and property exceeds £50,000
• From April 2027: If your combined income exceeds £30,000

It’s still possible that it could be pushed back further, but we can’t assume that will happen, so we do need to start preparing now.

For those with lower incomes, HMRC hasn’t confirmed mandatory dates yet, though they’ve indicated those with income above £20,000 will need to join at some point.

Will I really need to do four tax returns a year?

This is probably the biggest misconception about MTD for ITSA. You won’t be completing four full tax returns each year. The quarterly updates are much simpler – they’re essentially a summary of your income and expenses for that three-month period. You won’t need to calculate tax adjustments or claim reliefs during these quarterly submissions. Think of them more as ‘checkpoint updates’ rather than full tax returns.

The real work comes in your End of Period Statement and Final Declaration, which you’ll complete after the tax year ends – similar to the timing of the current Self-Assessment system.

What software will I need?

You’ll need to use MTD-compatible software to keep your records and submit information to HMRC. If you’re still using paper records or simple spreadsheets, this will be the biggest change.

Popular options like Xero, QuickBooks, and FreeAgent are all developing MTD-compatible solutions. Some of our clients who were initially nervous about moving to digital record-keeping have found these platforms surprisingly user-friendly once they get started.

“I was dreading the switch to digital,” confessed a local electrician who we helped set up with accounting software last year. “But being able to photograph receipts on my phone and have them automatically uploaded to my accounts has made life so much easier.”

How can I prepare now?

Even though the deadlines might seem far off, there are practical steps you can take today:

1. Assess your current record-keeping: If you’re still using paper records or basic spreadsheets, now’s a good time to think about upgrading.
2. Consider moving to cloud accounting software: Many of our clients find that once they switch to digital record-keeping, they wonder why they didn’t do it sooner. Getting comfortable with the software before it becomes mandatory will make the transition much easier.
3. Talk to your accountant: We can help you choose the right software, set up systems that work for your specific business, and ensure you’re MTD-ready well before the deadlines.
4. Start thinking quarterly: Consider reviewing your business finances every three months as a habit. Not only will this prepare you for the MTD reporting cycle, but it’s also good business practice to keep a regular eye on your numbers.

Will there be any benefits to this new system?

While change can be daunting, there are some potential upsides to MTD for ITSA:

• More up-to-date view of your tax position: You’ll have a clearer picture of your tax liabilities throughout the year, avoiding nasty surprises come January.
• Less last-minute scrambling: The quarterly update system encourages more regular record-keeping, potentially reducing the stress of gathering a year’s worth of receipts and information all at once.
• Better business insights: Digital record-keeping often provides reports and analytics that can help you make more informed business decisions.
• Reduced errors: HMRC estimates that avoidable mistakes cost the Exchequer over £9 billion a year. Digital record-keeping and submissions should help reduce these errors.

Can I be exempt from MTD for Income Tax?

HMRC recognises that digital tools aren’t suitable for everyone. You may qualify for an exemption if:

• It’s not reasonably practical for you to use digital tools due to age, disability, or remoteness of location
• Your business is run by members of religious societies whose beliefs prevent them from using computers

You can apply for an exemption later this year, most likely around October 2025.

We’re here to help you manage these changes

We know tax changes can be worrying, especially when they involve new technology. Our friendly team is here to guide you through the transition to MTD for ITSA with as little stress as possible. No question is too silly, and we promise to explain everything in plain English.

Book a free 15-minute chat with our team to discuss how Making Tax Digital might affect your business and what steps you can take to prepare. We’re always happy to help local businesses across Kent navigate the changing tax landscape.

Frequently Asked Questions

Will Making Tax Digital mean I pay more tax?

No, MTD changes how you report your income, not how much tax you pay. The tax rates and allowances remain the same.

Can I still use spreadsheets under MTD?

You may be able to use spreadsheets, but they’ll need to be linked to MTD-compatible software for submitting information to HMRC. This is known as a ‘bridging software’ solution.

What if I have multiple businesses?

If you have more than one self-employed business, you’ll need to submit quarterly updates for each one. However, they’ll all be linked to your single MTD account.

Will penalties apply for late submissions under MTD?

Yes, HMRC will introduce a new points-based penalty system alongside MTD for ITSA. You’ll accumulate points for missed submissions, with financial penalties applying once you reach a certain threshold.

How much will MTD-compatible software cost?

Costs vary depending on the software and features you need. Basic packages start from around £10 per month, with more comprehensive solutions costing more. Remember, software costs are tax-deductible business expenses.