If you are used to filing your tax return once a year, the rules are changing

Many sole traders and landlords in the UK are still used to dealing with Income Tax through a single annual Self Assessment return. That long-standing routine is now changing.

From 6 April 2026, Making Tax Digital for Income Tax will begin to apply on a mandatory basis to some taxpayers. HMRC confirms that the regime starts in phases, beginning with sole traders and landlords whose qualifying income is above £50,000. It will then extend to those above £30,000 from 6 April 2027, and to those above £20,000 from 6 April 2028.

For many business owners and landlords, this is not a minor administrative update. It changes how records must be kept, how often information must be sent to HMRC, and how penalties may apply if deadlines are missed.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is HMRC’s digital reporting regime for Income Tax. It requires affected taxpayers to keep digital records and use compatible software to send information to HMRC more regularly, rather than relying only on a single annual filing process. HMRC describes it as part of the wider move to modernise and digitise tax administration.

In practical terms, taxpayers within scope will generally need to:

keep digital records using compatible software

send quarterly updates to HMRC

submit a year-end tax return and finalise their tax position through the digital system

So this is not just about filing “four times a year” instead of once. It is a broader compliance system that changes both record keeping and reporting.

Who must use Making Tax Digital for Income Tax?

HMRC is introducing the rules in stages.

If your qualifying income from self-employment and property is over £50,000 for the relevant tax year, you will need to use Making Tax Digital for Income Tax from 6 April 2026. If it is over £30,000, you will need to use it from 6 April 2027. If it is over £20,000, you will need to use it from 6 April 2028. HMRC will review your Self Assessment return and, if your income is above the relevant threshold, it says it will write to you. However, HMRC also makes clear that it remains the taxpayer’s responsibility to check whether they need to comply, even if no letter is received.

This is an important point because many people still think the rules only apply to large businesses. They do not. A sole trader, a self-employed beauty professional, or a landlord with enough qualifying income can all fall within the regime.

What does “qualifying income” mean?

This is one of the most important areas to understand properly.

For Making Tax Digital for Income Tax, the key figure is qualifying income, not profit. HMRC’s guidance explains that the regime is triggered by qualifying income from self-employment and property, and industry guidance published on GOV.UK explains that this is measured before expenses. In other words, it is based on gross income from those sources, not the net amount left after costs.

This means someone may still be within scope even if their taxable profit is much lower after expenses. That is why many sole traders and landlords need to review the threshold carefully rather than assuming they are outside MTD simply because their profits are modest.

What does MTD actually require in practice?

Once you are within the system, compliance is more than just filing one annual return online.

You must keep digital records, use software that is compatible with HMRC’s system, and send quarterly updates. After the quarterly reporting cycle, you still need to complete the year-end process to finalise your tax position. HMRC’s step-by-step guidance and agent toolkit both confirm that MTD for Income Tax is built around digital records, quarterly updates, and digital finalisation of the year’s figures.

For taxpayers who have previously relied on spreadsheets without proper bridging arrangements, paper records, or informal bookkeeping, this may require a significant change in working practice.

What happens if you miss deadlines?

This is where many people become concerned, and rightly so.

HMRC has introduced a points-based late submission penalty system for Making Tax Digital for Income Tax. Under this model, a taxpayer receives a penalty point when a relevant submission deadline is missed. Once the penalty point threshold is reached, HMRC charges a £200 financial penalty. After that, each further missed deadline can trigger another £200 penalty.

However, one very important current detail must be understood properly.

For the 2026 to 2027 tax year, HMRC states that there are no penalties for missing a quarterly update deadline. You must still keep digital records and send the quarterly updates, but the quarterly-update penalty points do not apply for that first year. The points-based system will apply to quarterly updates for tax years after 2026 to 2027.

That means the common statement that “from 6 April 2026 every late quarterly submission will immediately start building points” is not fully correct. The first year contains transitional relief for quarterly update deadlines.

How do the late submission points work?

HMRC says the late submission penalties are points-based. For Making Tax Digital for Income Tax, the penalty point threshold is 4 points. Once you reach that threshold, HMRC issues a £200 penalty, and then another £200 penalty each time you miss another submission deadline after that. HMRC also notes that you can only get one point per deadline, even if you have more than one business.

The points do not disappear immediately. They remain on the account until the taxpayer has met the relevant conditions for expiry, including a period of compliance and being up to date with submissions. HMRC and the government’s 2025 tax legislation overview also indicate that the penalty framework continues to evolve, including powers to cancel and reset penalties in certain circumstances and to reflect reasonable excuse rules.

So while a one-off mistake may not result in an immediate fine, repeated late filing can become expensive.

What about late payment penalties?

Late payment is separate from late submission, and the rules are different.

HMRC explains that late payment penalties for MTD for Income Tax are based on how long the tax remains unpaid. In the first year of the new penalties, taxpayers have 30 days from the due date either to pay in full or to contact HMRC and agree a payment plan. After that first year, this grace period reduces to 15 days.

The general late payment framework says there is no late payment penalty if the tax is paid within 15 days of the due date. If payment is made between day 16 and day 30, the first penalty is 2% of the outstanding amount. If tax remains unpaid after 30 days, the first penalty becomes 2% of the amount outstanding at day 15 plus 2% of the amount outstanding at day 30, which in many cases produces a 4% charge by day 30. A second penalty then runs at 4% per year, calculated on a daily basis from day 31 until payment is made in full. HMRC also charges late payment interest from the date the payment became due until the date it is actually paid.

This means the financial cost of paying late can build up quickly, especially where the tax liability is substantial.

Why the “£10,000 one month late” example is often misunderstood

A lot of informal online explanations overstate or misstate how the penalty works.

If someone owes £10,000 and pays about one month late, the position depends on the exact number of days, whether it is within the first year of the new penalties for that taxpayer, whether a Time to Pay arrangement was agreed, and how much remained outstanding at day 15 and day 30. Under the general framework, a 30-day late payment could often produce a first-stage penalty around 4%, plus late payment interest, but that does not mean every case will automatically produce a penalty in the same way.

So it is safer and more accurate to say this: late payment under MTD can become expensive very quickly, and the amount depends on both the unpaid balance and how long it remains unpaid.

What if you do not use compatible software?

Making Tax Digital for Income Tax is not optional once you are within scope, unless you are exempt. HMRC says you need to keep digital records and choose software that works with the system. If you fail to comply properly, continue to rely on non-compliant methods, or ignore the reporting rules, you increase the risk of missed deadlines, inaccurate submissions, and wider compliance problems.

That does not mean HMRC will automatically open a formal tax investigation just because a person chooses the wrong software. But poor compliance, repeated missed obligations, or signs that the rules are being deliberately avoided can certainly increase risk. That is particularly true where digital record keeping is weak or the taxpayer cannot properly support the figures being sent to HMRC.

Can anyone be exempt from MTD for Income Tax?

Yes, some exemptions do exist.

HMRC provides exemption rules for certain taxpayers, including some cases involving age, disability, remoteness, inability to use digital tools, or specific religious grounds. There are also temporary and permanent exemption rules in some circumstances. The exact position depends on the individual facts, so anyone who believes MTD may not be practical for them should review the official exemption guidance rather than simply assuming they are outside the rules.

Why business owners should prepare early

One of the biggest risks with MTD is leaving preparation too late.

Many sole traders and landlords still do not have bookkeeping systems that are ready for digital record keeping and regular reporting. Some are still relying on manual processes, incomplete records, or year-end catch-up work. Under MTD, that approach becomes much more dangerous because delays and weaknesses will affect multiple reporting deadlines throughout the year.

Preparing early means checking whether you are in scope, reviewing your qualifying income, choosing the right software, making sure your records are complete, and understanding how the new reporting cycle will work before it becomes compulsory.

How can A2B Tax help?

Making Tax Digital for Income Tax is not just a software issue. It is a compliance issue, a record-keeping issue, and a practical business process issue.

A2B Tax can help by:

reviewing whether you fall within MTD for Income Tax and when you need to start

checking your qualifying income correctly

helping you choose and implement suitable MTD-compatible software

reviewing your bookkeeping system so your records are ready for quarterly reporting

supporting you with submissions, year-end finalisation, and deadline management

helping reduce the risk of penalties caused by missed deadlines or weak records

Conclusion

Making Tax Digital for Income Tax is one of the biggest administrative changes for sole traders and landlords in recent years.

From 6 April 2026, those with qualifying income over £50,000 will begin moving into the new system. The rules then expand to those over £30,000 from 6 April 2027 and those over £20,000 from 6 April 2028. The key figure is qualifying income before expenses, not profit. Taxpayers within scope must keep digital records and use compatible software to comply properly.

HMRC’s penalty rules mean that repeated late submissions can lead to £200 penalties, while late payment can trigger percentage-based penalties and daily interest. Even though quarterly update penalties are relaxed for the 2026 to 2027 tax year, that should not be mistaken for a reason to delay preparation.

Complying with MTD is not just about avoiding penalties. It can also help make your records more accurate, your tax position clearer, and your financial management more organised. Contact A2B Tax for advice and support in getting ready before the rules start to affect you.