Making Tax Digital: What Sole Traders and Landlords Need to Know
The way many sole traders and landlords report their income to HMRC is going through a significant transformation. The Government’s Making Tax Digital (MTD) initiative is modernising the UK tax system, aiming to streamline the process, reduce errors, and encourage more timely tax compliance.
Instead of submitting the traditional annual Self-Assessment tax return, individuals within the scope of MTD for Income Tax now need to keep digital records and submit updates to HMRC using compatible software throughout the year.
Who Is Impacted?
The MTD for Income Tax rules apply to self-employed individuals and landlords who currently file Self-Assessment tax returns. At this stage, the rules do not extend to limited companies, partnerships, limited liability partnerships, or trusts.
The rollout is happening in stages, based on gross qualifying income in the prior year’s tax return:
• From April 2026: Taxpayers with gross qualifying income in 2024/25 of more than £50,000
• From April 2027: Taxpayers with gross qualifying income in 2025/26 of more than £30,000
• From April 2028: Taxpayers with gross qualifying income in 2026/27 of more than £20,000
Gross qualifying income is calculated as the total income before expenses from all sole trade and property businesses combined. If you have both types of income, they are added together to determine if you meet the threshold. For jointly owned property, only your share of the income is counted.
What Will Change?
Once within the scope of MTD for Income Tax, you will need to maintain digital records using software that meets HMRC’s requirements, submit quarterly summaries of your income and expenses, and file a final declaration at the end of each tax year. The final declaration replaces the current Self-Assessment tax return and is your opportunity to provide details of any other income sources before HMRC calculates your final liability.
Getting Ready for 2027
By understanding the requirements of MTD for Income Tax and preparing in advance – choosing suitable software, getting used to digital record-keeping, and familiarising yourself with quarterly reporting – you can ensure a smooth transition.
We are already supporting many clients with the MTD reporting that started in April 2026. On completion of the 2025/26 tax returns, we will proactively reach out to the clients who will be within the scope of MTD for Income Tax from April 2027.
If you have any questions or would like support in preparing for these changes, please get in touch with us – MTD@gwayre.co.uk
