There are now just six months until Making Tax Digital (MTD) for Income Tax extends to sole traders and landlords with qualifying income above £30,000 from 6 April 2027.
Following a slower-than-expected response from the first group of taxpayers brought into MTD, HMRC is encouraging those affected by the next phase to start preparing early.
For the first quarterly update, 436,000 eligible individuals submitted their information by the deadline. This left just under half of the 864,000 expected submissions outstanding.
In response, HMRC began proactively signing up eligible taxpayers to MTD in September 2026.
MTD forms part of the Government’s wider plan to modernise the tax system and transform how people manage their tax affairs.
Under the rules, eligible sole traders and landlords must keep digital records and use compatible software to send details of their income and expenses to HMRC.
The first phase launched on 6 April 2026 for individuals with qualifying income above £50,000. From 6 April 2027, the threshold will reduce to above £30,000, bringing approximately one million additional sole traders and landlords into scope.
Although penalties for failing to submit updates were suspended for the 2026/27 tax year, taxpayers joining the next phase will not benefit from the same approach.
MTD also changes how taxpayers report their earnings. Instead of relying solely on an annual Self Assessment return, those affected must submit quarterly updates during the tax year and then complete a final declaration to confirm their income and tax position.
These requirements mean reviewing existing bookkeeping arrangements and ensuring financial information can be maintained and reported digitally.
For individuals who still use paper records or only organise their finances once a year, adapting to the new system may take some time.
From April 2027, taxpayers within MTD will be subject to a points-based penalty system for late submissions.
Each missed quarterly update or tax return deadline will result in a penalty point. Once a taxpayer reaches four points, HMRC will issue a £200 financial penalty. A further £200 penalty will apply for each subsequent missed deadline while the taxpayer remains at the threshold.
Repeated delays could therefore lead to high costs, particularly for those who leave their bookkeeping until the end of the tax year or find it difficult to keep their records up to date.
A single late quarterly update will not usually result in an immediate financial penalty under this system. However, meeting deadlines consistently and establishing good record-keeping habits from the beginning will be essential.
Taxpayers should also be aware that separate penalties may apply if they fail to pay their tax on time. Preparing for MTD means understanding both the reporting requirements and the arrangements needed to manage tax payments.
With six months remaining before MTD becomes mandatory for sole traders and landlords with qualifying income above £30,000, taking steps now can help make the transition easier.
Here are four ways to get started:
Taking these steps now can reduce the risk of last-minute problems and help you adapt to MTD with greater confidence.
We know that preparing for MTD can feel overwhelming, especially as requirements and deadlines evolve. Our team is here to help you understand the changes and what they mean for your business or property income.
We can guide you through enrolment, help you find and use compatible software and support you in keeping track of your reporting deadlines.
Need help getting ready for MTD? Get in touch with our team to find out how we can support you.
