A practical guide for sole traders and landlords preparing for the next stage of MTD for Income Tax Making Tax Digital for Income Tax is already here for some sole traders and landlords, but from 6 April 2027 it will apply to a much larger group. The system requires those within scope to keep digital business records and send HMRC a short online update every three months, rather than relying on one Self Assessment return each year. It has applied since 6 April 2026 to sole traders and landlords with qualifying income over £50,000 . From 6 April 2027 , that threshold falls to £30,000 of combined self-employment and property income . For those joining next, the change is less about how much tax you pay and more about how you keep your records and report information to HMRC. Four quarterly updates are followed by a year-end final declaration – similar in substance to the annual tax return many people are familiar with, but submitted through compatible software rather than HMRC's own online service. In other words, the days of handing over a shoebox of receipts once a year are coming to an end for those affected. More than 436,000 sole traders and landlords successfully submitted their first MTD for Income Tax quarterly update, and more than 570,000 had signed up to the service , HMRC confirmed as at 12 August 2026. The next wave is expected to be considerably larger. If your combined income from self-employment and property sits between £30,000 and £50,000 , your 2025/26 tax return is the one HMRC will use to decide whether you need to join from 6 April 2027. That means the time to work out whether you're affected – and prepare for it – is now, rather than next spring. The key points The £30,000 threshold is based on combined gross self-employment and property income before expenses are deducted . If your qualifying income exceeds that amount, based on your 2025/26 tax return, you'll need to join MTD for Income Tax from 6 April 2027. Once you're within the system, you'll need to make four quarterly updates plus a final declaration , all through compatible software. For jointly owned rental property, only your own share of the rental income counts towards your qualifying income, rather than the property's total income. There is another important difference for those joining in 2027: unlike the first intake in 2026, there is no penalty-free grace year for quarterly updates . The points-based penalty regime can apply from the outset. Partnerships and limited companies aren't yet included, while qualifying income of £20,000 or less remains automatically exempt. What is Making Tax Digital for Income Tax? MTD for Income Tax is HMRC's system for reporting self-employment and property income digitally throughout the year, alongside an annual final declaration. It doesn't introduce a new tax. Income Tax, Class 4 National Insurance and the underlying rules for calculating profit all remain the same. What changes is the reporting process. Anyone within scope must keep digital records of their self-employment and property income and expenses, send HMRC a quarterly update every three months and submit a year-end final declaration by 31 January , using compatible software rather than HMRC's own online service. You can't submit your final declaration for the year until all four quarterly updates have been sent. The rules apply in the same way across England, Scotland, Wales and Northern Ireland. Scottish taxpayers pay Income Tax using different rates and bands, but that affects how much tax is due rather than whether MTD applies. The three thresholds – and when they apply MTD for Income Tax is being introduced in three stages. The threshold is based on qualifying income – broadly, your gross self-employment and property income before expenses – declared on a particular year's tax return. Those with qualifying income over £50,000 in 2024/25 became subject to MTD from 6 April 2026 . Those with qualifying income over £30,000 in 2025/26 will join from 6 April 2027 . The threshold then falls again, with those earning over £20,000 in 2026/27 due to join from 6 April 2028 . HMRC reviews the relevant Self Assessment return each year and writes to anyone who has crossed the applicable threshold, confirming that they need to join from the following April. It's important, however, not to rely entirely on receiving that letter. Responsibility for checking whether you need to comply ultimately remains with you. For the £30,000 threshold, your 2025/26 tax return, due by 31 January 2027 , is the one that matters. Because that return relates to income you've already earned, some people may only discover they're affected a matter of weeks before the new rules begin. Working out your likely position now gives you much more useful notice. What counts as qualifying income? Qualifying income is your total turnover from self-employment and property added together, before expenses are deducted . It is based on the tax return submitted for the relevant year, rather than your profit. Suppose you're a personal trainer earning £22,000 from self-employment and also receive £9,500 in gross rent from a buy-to-let property you own outright. Your combined qualifying income is £31,500 . That's above the £30,000 threshold, so based on income declared on your 2025/26 return, you'd need to start using MTD for Income Tax from 6 April 2027. Not everything on your tax return counts towards the threshold. Employment income taxed under PAYE, dividends, State Pension and private pensions, and your share of profit from a partnership as an individual partner aren't included in qualifying income, although they may still need to be reported on your tax return. If you're UK resident, foreign property income counts alongside UK property income. If you're not UK resident, generally only UK property income and self-employment income declared on a UK tax return counts towards the threshold. What about jointly owned property? This is an important point for landlords. Only your share of the income from a jointly owned property counts towards your qualifying income, not the total amount generated by the property. Suppose you and your partner jointly own a rental property producing £40,000 in gross rental income each year , split equally. Your individual share is £20,000. If that's your only source of qualifying income, you'd be below the £30,000 threshold for the April 2027 start date, despite the property itself generating considerably more. If you're only ever told your share of the income after expenses have already been deducted, rather than seeing the gross rent, HMRC will normally use that net figure for your qualifying income instead. Any other self-employment or property income in your own name is then added to determine your total. Who isn't affected – at least for now? Partnerships don't currently need to use MTD for Income Tax and HMRC hasn't yet confirmed a start date for them. An individual partner with their own separate self-employment or property income could, however, still be caught personally. Limited companies sit outside these rules entirely because they pay Corporation Tax, while trusts and estates filing an SA900 return continue to report as before. Anyone whose qualifying income is £20,000 or less is automatically and permanently exempt, unless their circumstances change. A handful of other groups also qualify for exemptions, at least for now, including farmers and creative artists claiming averaging relief, foster and kinship carers, and people declaring non-UK residence. Most of these exemptions are temporary rather than permanent. What if your income moves around the threshold? Crossing the threshold isn't necessarily permanent. If you start a new self-employment or rental property partway through a tax year, HMRC will normally annualise the income to estimate your full-year qualifying income. This happens automatically for sole traders, while landlords need to annualise their own figures. If your qualifying income subsequently falls, however, you can't necessarily leave MTD immediately. Once you're using MTD for Income Tax, you can generally only opt out once your qualifying income has remained below the relevant threshold for three consecutive tax years . Selling your only rental property or closing your only self-employment can remove you from scope, but only once every source has stopped. HMRC still counts a ceased source towards qualifying income if another self-employment or property source continues. Where all your self-employment and property income has ceased since your last tax return, you won't need to use MTD for Income Tax, and you should tell HMRC before the start of the next tax year rather than waiting until your return is due. How do the quarterly updates work? Every three months, your software adds up your digital records for each business or property and sends HMRC a running total for the tax year to date, using the same income and expense categories as a Self Assessment return. These are summaries rather than complete tax returns, and no tax is calculated or due at this point. The quarterly deadlines are 7 August, 7 November, 7 February and 7 May . You need to submit an update even if you had no income or expenses during the period. You can also send an update early, up to ten days before the quarter ends, if you know there's nothing further to add. After each update, your software will show an estimated tax bill based on the information submitted. Of course, that estimate is only as useful as the information behind it. Adding other income, such as savings interest or dividends, during the year rather than leaving it until your tax return can make the running estimate more meaningful. Do you need to categorise every expense? Not necessarily. If your gross income from a self-employment or property business is below £90,000 , the current VAT registration threshold, you can report a single total expenses figure for that business each quarter rather than breaking every cost down by category. This is sometimes called consolidated or three-line reporting. The main exception is residential property finance costs, chiefly mortgage interest, which must always be reported separately because of the way tax relief on those costs is calculated. The £90,000 limit applies separately to each business or property source. Someone with two income streams could therefore use the simplified approach for one while needing full categories for another, depending on the turnover of each. What happens at the end of the year? After submitting your fourth quarterly update, you'll need to make your final declaration by the usual 31 January deadline . The difference is that this will now be done through compatible software rather than HMRC's own online service. The final declaration draws together all four updates and adds any other income and reliefs, including employment income, savings, dividends, Gift Aid or pension contributions. It then calculates your final Income Tax and Class 4 National Insurance liability. If you jointly let a property and chose not to include expenses in your quarterly updates, this is also the point at which you report them, by resending your fourth update before finalising the return. The tax payment deadline itself doesn't change. It remains 31 January . What software will you need? You'll need commercial software recognised by HMRC. Unlike the current online Self Assessment filing service, HMRC doesn't provide its own free MTD for Income Tax tool. There are two broad options: software that creates and stores your digital records directly, or bridging software that connects records held in a spreadsheet to HMRC's systems. Both free and paid products are available. Some deal with only part of the process, such as maintaining records or submitting updates, while others can handle everything through to the annual tax return. You can use more than one product if that works better for you, although only one product can be used for each individual submission. If you already use bookkeeping software for VAT or general record-keeping, it's worth checking whether it – or an available add-on – already supports MTD for Income Tax. Are there exemptions? Beyond the automatic £20,000 floor, the main route to exemption is digital exclusion . This can apply where age, disability or a health condition, a religious objection to digital communication, or a genuine lack of internet access makes it unreasonable to expect somebody to use compatible software. An exemption needs to be applied for and HMRC assesses each case individually. Simply preferring paper records, being unfamiliar with software or facing additional cost and time isn't enough on its own. Some other groups – including ministers of religion, Lloyd's underwriters, and people receiving Blind Person's Allowance or Married Couple's Allowance – are automatically exempt for now where this already appeared on their 2024/25 tax return, although this is expected to change at a later date. If your circumstances are unusual, it's better to check than assume either way. What happens if you miss a deadline? This is particularly important for those joining in April 2027. Late-submission penalties work on a points system. Each missed quarterly update or annual filing deadline earns one point . Once you reach four points, a £200 penalty applies , followed by another £200 for every deadline missed after that. Points normally expire 24 months after the deadline they relate to , provided you remain below the threshold. The first group joining MTD in 2026 was given a penalty-free first year for quarterly updates. That concession doesn't apply to the April 2027 intake. From 6 April 2027, the points-based system applies in full from the outset. It's therefore worth establishing the habit of meeting the deadlines from your very first quarter rather than assuming there will be a grace period. Late payment works differently, and here the first-year concession applies to everyone, regardless of which wave brings them into MTD. In your own first year under the scheme, HMRC allows 30 days rather than 15 before a late-payment penalty can apply, falling to 15 days from your second year. Once that grace period passes, unpaid tax attracts a penalty of 3% for the 2026/27 tax year, rising to 4% from 2027/28 , with a further equal penalty after 30 days and a daily annual charge from day 31. What should you do before April 2027? The biggest advantage of preparing early is simply avoiding a rushed move to new software and record-keeping habits immediately before your first deadline. Start by looking at your likely 2025/26 self-employment and property income . Remember that we're interested in turnover before expenses, not simply the profit you've made. If you're approaching or exceeding £30,000, start comparing software now. If you already use bookkeeping or VAT software, find out whether it can also deal with MTD for Income Tax. It's also a good time to get into the habit of recording income and expenses as they happen rather than gathering everything together once a year. Landlords with jointly owned properties should establish their actual share of the relevant income, as this can determine whether they're individually affected. And if you're not sure where you stand, ask sooner rather than later. We can check your qualifying income, help you choose suitable software and put a quarterly routine in place well before April. Final thoughts Making Tax Digital for Income Tax has already changed record-keeping for sole traders and landlords earning over £50,000. The £30,000 threshold arriving on 6 April 2027 will bring a considerably larger group into the system, many of whom have never previously needed to think about digital quarterly reporting. Crucially, the tax year that determines who joins next – 2025/26 – has already ended , and the return reporting that income is due by 31 January 2027 . The risk is waiting until an HMRC letter arrives, or until the first quarterly deadline is only weeks away. Choosing software and getting used to keeping records digitally takes time. If your combined self-employment and property income is approaching £30,000, or you're unsure how jointly owned property affects your position, it's worth looking at it now. We can check whether you're likely to be affected and help you get everything ready well ahead of April 2027. Talk to us about Making Tax Digital. You may find this article useful: Missed the MTD deadline? Here’s what happens next

Most business owners don’t expect their bookkeeping to be perfect every day. Nor should they. There will always be an invoice waiting to arrive, a payment that needs identifying or something that needs checking before we’re quite sure where it belongs. But there comes a point where we want to use the bookkeeping for something else, and at that point “nearly finished” can become a problem. There’s a difference between a judgement and an unknown This came up in a conversation recently. There was some year-end work to do and most of the bookkeeping was complete, but there were still a number of queries outstanding. Could we start the next piece of work anyway? Possibly, but first I wanted to know what was missing. There’s an important difference between knowing that the accounts contain a small discrepancy which isn’t worth spending any more time investigating, and having transactions missing that we haven’t yet identified. One is a judgement; the other is an unknown. Take a supplier invoice for £10,000 which hasn’t yet been entered into the accounts. If it hasn’t been paid, the bank can be completely reconciled and everything may appear fine. But the accounts are showing £10,000 too much profit and £10,000 too little owed to suppliers. Depending on what was purchased, the VAT position might be wrong as well. If all we’re trying to do is finish the bookkeeping, that’s something we need to correct, but the bigger problem comes when we start relying on those figures for something else. What happens when we rely on incomplete figures? We might use them to decide whether the company can afford a dividend, review its margins, prepare a cash-flow forecast or carry out some more specialist tax work. If that missing cost is relevant to the work we’re doing, we’ve now started answering a completely different question using incomplete information. The same applies to management accounts. There’s little value in producing a lovely report showing that gross margin has improved if some of the costs which should be included in it haven’t been recorded yet. The report itself can be perfectly accurate; it’s the information we’ve fed into it that’s wrong. Bookkeeping is the foundation This is one of the reasons I put quite a lot of emphasis on bookkeeping, even though bookkeeping isn’t really what I’m interested in. What I’m interested in is what we can do with the information afterwards. If I know the bookkeeping is reliable, we can start asking much more useful questions about how the business is performing, where the cash is going, whether margins are changing, what the next few months might look like and what the owners can safely take out of the business. There are increasingly clever tools available to help answer those questions. Accounting packages will produce reports at the click of a button, and forecasting and reporting software can turn the data into dashboards and some very impressive-looking graphs. None of them, however, can tell us about the invoice that never made it into the accounts. Finished doesn’t have to mean perfect That doesn’t mean I expect bookkeeping to achieve some impossible standard of perfection before we’re allowed to use it. Quite the opposite. Accounting involves judgement and materiality, and sometimes spending another hour trying to find a tiny difference makes absolutely no commercial sense. If I know there’s a £5 discrepancy and decide it isn’t worth another hour of somebody’s time to find it, I can make that decision knowing what I’m dealing with. What concerns me more is not knowing whether the difference is £5 or £5,000. That’s why clearing bookkeeping queries isn’t simply an exercise in making everything tidy before the accountant starts the “proper” work. The bookkeeping is the foundation for the proper work. The further we move from basic compliance into management accounts, forecasting, tax planning and financial advice, the more we’re relying on that foundation. Better analysis doesn’t compensate for worse information underneath it. So, when is the bookkeeping actually finished? Not necessarily when every last penny has been accounted for. For me, it’s when we’ve dealt with the important unknowns and understand anything that remains well enough to decide whether it matters. At that point, we have something much more useful than tidy books: we have numbers we can actually trust. If you’re running a business and aren’t confident that the numbers you’re looking at tell you what’s really going on, get in touch.  We can have a chat about where the problems are and whether I can help you get to the point where your accounts are useful for more than filing the next return.