As of April 2026, Making Tax Digital for Income Tax (MTD IT) is changing the way sole trader businesses and property landlords manage their taxes. The new rules require digital record keeping and submission of quarterly updates to HMRC, with a final year end declaration. If you are a sole trader or landlord, it’s important to understand these upcoming changes in order to be compliant and avoid penalties.
In this blog, we’ll explore how MTD IT will affect you and provide practical steps to help you prepare.
Who Does Making Tax Digital for Income Tax Affect?
MTD IT will affect different businesses and landlords based on their turnover. If you fall into one of these categories, it’s time to start preparing.
- April 2026 – Sole traders or landlords with turnover (sales/gross income)over £50k
- April 2027 – Sole traders or landlords with turnover (sales/gross income) over £30k
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is a government initiative to digitise the UK tax system. The aim is to reduce errors, improve efficiency, and make tax filing more transparent and accurate. Under MTD IT, businesses, including sole traders and landlords, must keep digital records and submit their tax information to HMRC quarterly, rather than filing an annual tax return as in the past.
How Making Tax Digital 2026 Will Affect Sole Traders and Landlords
Here’s how MTD IT will impact both sole traders and landlords:
- Quarterly Reporting Becomes Mandatory:
Both sole traders and landlords will be required to report their income and expenses to HMRC every three months with a Statement of Income and Expenses.
- Digital Record-Keeping is Essential:
Under MTD IT, paper-based records will no longer be sufficient. You’ll need to keep digital records of all your financial transactions by using digital software.
- Using MTD-Compliant Software:
The accounting software you choose to manage your finances must be MTD-compliant.
At HB Accounting, we recommend using Xero. It is our software of choice, and our clients find it very user friendly!
- Get clear on your finances:
MTD IT offers an opportunity to get a clearer picture of your finances. With access to real-time financial information, it will help you make informed decisions, track your cash flow and maximise profits.
What Steps Should Sole Traders and Landlords Take Now?
Here’s what you can do now to get ensure and ensure you are ready for MTD IT:
- Start Using MTD-Compliant Software:
The first step in preparing for MTD IT is to invest in accounting software (such as Xero) that is MTD-compliant. This software will help you track your income and expenses, generate quarterly updates and submit them directly to HMRC.
- Set Up Digital Record-Keeping Systems:
Organising your income and expenses in your chosen software to ensure your financial information is easily accessible and ready for quarterly updates.
- Get Professional Help:
Whether you’re a sole trader or managing rental properties, working with a bookkeeper or accountant who understands MTD IT is invaluable. Contact us now to get set up with Xero software, implement the right processes, and ensure your business finances are in order!
Conclusion: Preparing for MTD IT and Staying Compliant
Making Tax Digital for Income Tax is set to change the way sole traders and landlords manage their finances and taxes. With quarterly reporting, digital record-keeping, and the use of MTD-compliant software, both will need to adapt to these new rules. By taking action now you can understand your software and processes ahead of April 2026. Staying compliant will help you avoid penalties and make managing your taxes easier and more efficient in the long run!
Check this link for more detailed information on MTD and how it applies to sole traders and landlords.
Contact us now to get started!