Making Tax Digital for Income Tax: What Sole Traders and Landlords Need to Do Now

From 6 April 2026, sole traders and landlords with qualifying gross income over £50,000 in the 2024 to 2025 tax year must use Making Tax Digital for Income Tax. This means keeping digital records, using compatible software, sending quarterly updates to HMRC, and submitting your end-of-year tax return through software.

That change does not remove Self Assessment, but it does add a new reporting routine before the annual deadline. You now need to build habits around digital record keeping, quarterly review, and accurate software submissions before your first MTD deadline arrives. If you are reading this with the first reporting period already under way, this guide walks you through exactly what to do, when, and how to avoid the most common slip ups our clients across the East Midlands have flagged so far.

Who has to use MTD for Income Tax from April 2026

The first wave catches more people than many expect. HMRC looks at your gross income before expenses, not your profit, and it adds together qualifying income from self-employment and property before deciding whether you cross the threshold. A part-time landlord with £30,000 of rent who also turns over £25,000 from freelance design work is in scope from day 1, even though neither activity on its own would qualify.

The phased rollout looks like this:

Limited company landlords sit outside this regime and continue to pay Corporation Tax in the usual way, although directors with rental income held personally still need to think about MTD on those personal lettings. If you are weighing up whether to stay personal or move properties into a company, our piece on sole trader versus limited company is a useful starting point, and our SPV versus personal ownership guide goes deeper on the property angle.

What changes in practice

Instead of dealing with everything once after the tax year closes, you will keep digital records throughout the year and send quarterly updates for each relevant income source. You will then submit your annual tax return through compatible software, bringing together the quarterly figures and any other tax information needed to finalise your position.

The first standard quarterly period runs from 6 April 2026 to 5 July 2026, with a submission deadline of 7 August 2026. The remaining quarterly update deadlines are 7 November, 7 February and 7 May. You can elect to align quarters with calendar months if that suits your bookkeeping cycle, but the filing deadlines remain fixed. There is more detail on the cadence in our companion article on MTD quarterly update returns and a step by step walkthrough in our MTD quarterly reporting post.

Separate quarterly submissions are required for each of these, where they apply to you:

• Self-employment income, with one set of submissions per trade.
• UK property income.
• Overseas property income.

Joint ownership adds a wrinkle worth flagging early. If you split rental income with a spouse, partner, sibling or another co-owner, your share of the property income counts towards your own qualifying income. Both owners may have separate filing duties depending on their wider income position. Our MTD for jointly owned property explainer covers how HMRC assesses your share and what records each party needs.

Why digital record keeping is the heart of the change

MTD is not just an electronic version of your old paper return. HMRC expects transactions to be recorded digitally and submitted through software that works with its systems. Spreadsheets can still play a role, but only if bridging software preserves the required digital links between your records and the final submission.

For most landlords and sole traders, the simpler route is a cloud accounting package. Xero is one of the most widely used options in the UK, and as xero accountants Nottingham we see it work well for small portfolios and growing freelance businesses alike. If you have never used cloud software before, our Xero bookkeeping basics guide and our migration plan on moving from spreadsheets to Xero will help you get comfortable.

A few habits make the quarterly cycle much easier:

• Connect a dedicated bank feed for each trade and property so transactions flow in automatically.
• Use a receipt capture app to photograph and attach evidence as you go, which our receipt capture workflow article walks through.
• Reconcile weekly rather than scrambling at quarter end. Our piece on Xero bank reconciliation covers the rules and shortcuts that save real time.
• Set up automations for recurring rent, standing charges and supplier invoices, which is exactly what our Xero automations guide is designed for.
• Run a monthly mini close so the quarterly submission becomes a quick review rather than a fresh project.

If you would like a sanity check on your current process, our bookkeeping health check can help flag weak points in records, controls and reporting before they become a problem.

The new penalty regime you need to know about

MTD comes with a points-based late submission penalty system. For the 2026 to 2027 tax year, HMRC will not apply penalty points for late quarterly updates, although you still need to keep digital records and submit those updates before you can complete your tax return.

After that first year, each missed quarterly update or tax return deadline can lead to a penalty point. The penalty point threshold for MTD for Income Tax is 4 points. Once you reach the threshold, you can receive a £200 penalty, followed by a further £200 penalty for each additional missed deadline while you remain at the threshold.

Late payment is a separate matter. For the 2026 to 2027 tax year, penalties can apply if tax remains unpaid after the due date. In the first year under the new penalties, you generally have 30 days from the due date to pay in full or contact HMRC to arrange a Time to Pay plan. After the first year, that grace period reduces to 15 days. For 2026 to 2027, the late payment penalty can be 3% of the tax owed at day 15 and a further 3% at day 30, with an annual penalty rate of 10% accruing daily from day 31. For 2027 to 2028, the day 15 and day 30 charges rise to 4%.

Our recent piece on the HMRC crackdown on late payments explains how this fits with wider HMRC enforcement, and our update on tax refunds no longer being automatic is worth a read if you are used to overpayments bouncing back to you without prompting.

The honest takeaway is that small lapses now add up faster than they used to. Setting calendar reminders, putting aside a tax reserve each month and signing off your reconciliations on a fixed weekly slot is the cheapest insurance you can buy.

A landlord specific to do list

Property income raises questions that pure sole traders do not face. A few of the issues we see most often include:

• Mortgage interest restrictions still apply, so your quarterly figures should track the underlying finance cost even if relief is restricted to the basic rate of Income Tax. Our Section 24 and mortgage interest post has the detail.
• Repairs versus improvements is the most common mistake we correct on landlord returns, and our deductible expenses for landlords guide explains how to draw the line.
• Cash flow matters more under quarterly reporting because you can see liabilities building in real time, which is good news if you read our landlord cash flow mastery piece and act on it.
• If you let short term or run HMOs, your record keeping has extra layers, and our article on short term lets and HMOs accounting covers the differences. The abolition of the furnished holiday lettings regime from April 2025 is also worth revisiting.
• For Stamp Duty implications when you grow a portfolio, see our SDLT for landlords explainer.
• A clean year end checklist for property portfolios makes the final declaration much faster.

If your portfolio is growing or you simply want a steady pair of hands on quarterly filings, our team works with property owners as a dedicated accountant for landlords and as a tax accountant property specialist. For more strategic decisions like incorporation or trust structures, our tax planning for property investors guide is a useful next step, and you can read the wider role of a property accountant in our landlord accountants explained piece.

A sole trader specific to do list

If your income comes from trading rather than property, the focus shifts to clean expense categorisation, simple invoicing and a tidy chart of accounts. Practical steps include:

• Open a dedicated business bank account if you are still mixing personal and trade transactions.
• Switch to cloud invoicing so payments and receipts reconcile automatically, with the time savings outlined in our 5 quick Xero tips article.
• Track every allowable cost as you go, because catching up at quarter end is when mistakes creep in.
• Watch out for side income, especially where you use online platforms. Certain platforms must now report seller information and income data to HMRC each year, so regular trading activity is easier to identify. Our recent post on HMRC cracking down on side hustle income covers the platforms now reporting earnings directly.
• If you have only just started trading, our accountant for start up service is designed for exactly this stage, and our filing returns for landlords piece is useful if you also have property income to declare.

When to bring in professional help

Not every sole trader or landlord needs an accountant, but the new cadence makes outside support more valuable than it was under annual returns. A few common triggers include:

• Multiple income streams that need separate submissions.
• A portfolio split between personal ownership and an SPV.
• Limited time to manage four submissions a year alongside running the business.
• Anxiety about choosing software or migrating from spreadsheets.
• Uncertainty about what counts as qualifying income.
• A need to keep records MTD-ready while still managing cash flow, tax planning and deadlines.

If that sounds familiar, our combined bookkeeping and tax support is delivered by bookkeepers in Nottingham who understand both the software and the rules. For larger operations that want the back office handled end to end, our outsourced finance services team takes care of bookkeeping, payroll and reporting under one engagement, freeing you up to focus on what you actually do well. You can also see the broader case for outside support in our benefits of outsourcing your accountant post.

Frequently asked questions

Do I need to register for MTD myself or will HMRC do it automatically?

You need to sign up yourself. HMRC may write to you if its review of your Self Assessment return shows that you have crossed the threshold, but it remains your responsibility to check whether MTD applies and make sure you are signed up in time. Registration is done through your Government Gateway account, and your accountant can do it on your behalf if you appoint them as your agent.

What counts as qualifying income?

Qualifying income is gross income before expenses from self-employment and property letting added together. Salary, pension income, dividends and savings interest do not count for this test. Your share of jointly owned property income can count, so landlords should check their own share rather than the total rent received by all owners.

Can I keep using a spreadsheet?

Yes, as long as you use bridging software that preserves the required digital links to HMRC. In practice, most landlords and sole traders find a cloud package like Xero faster, more accurate and less risky because it reduces manual copying, improves record keeping and makes quarterly reporting easier to manage.

Are limited company landlords affected?

Not by MTD for Income Tax. Companies continue to file Corporation Tax returns and statutory accounts. However, personal rental income held by a director outside the company can still fall in scope on its own if the qualifying income threshold is met.

What happens if my income falls below the threshold in a later year?

Once you are in MTD, you may be able to opt out if your qualifying income falls below the relevant threshold for 3 consecutive tax years. HMRC will assess the position based on your Self Assessment information and confirm whether you can leave the regime.

Is there support for people who genuinely cannot go digital?

Yes. HMRC recognises digital exclusion exemptions in certain circumstances, including where it is not reasonably practicable for you to use digital tools because of age, disability, location, religion or another valid reason. If you are exempt, you must still report your income and gains through Self Assessment, but you do not have to use MTD for Income Tax.

Ready to get MTD ready with help from experienced accountants in Nottingham

The earlier you act, the less stressful your first quarterly deadline will feel. Our team has been working with sole traders, landlords and property businesses across the East Midlands for years. If you are comparing accountancy firms in Nottingham, we can take you from software selection through quarterly submissions and the final declaration with one consistent point of contact.

Call us on 0115 648 8686 or get in touch through our website to book a free, no obligation conversation about your MTD plan.

Kellee Quigley

I lead FHP Accounting, an accountancy practice specialising in Commercial and Residential Property Accounting. Our goal is to make the administration of running property portfolios easier for landlords, managers, and investors — allowing you to focus on what you do best, while we take care of everything behind the scenes.