Millions of sole merchants and landlords have simply days to arrange for enormous adjustments to the tax system that take impact this yr.
From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will apply to sole merchants and landlords whose mixed gross earnings from self-employment and/or property exceeds £50,000 a yr. If this is applicable to you, you’ll have to maintain digital information and use HMRC-compatible software program to submit 4 quarterly updates and then a ‘final declaration’ to HMRC annually. This will exchange the present self-assessment tax return.
The Government claims MTD will “modernise the tax system” and “reduce the tax gap”. But critics says HMRC’s communication on the topic has been woefully missing, with the new regime set to value freelancers and landlords time and cash.
Manase Mtopa, head of UK at accounting service Hnry, says: “Filing of taxes used to be a free service completed annually, so introducing the need to use software quarterly will invariably introduce costs to the taxpayer. The self-employed are often paying for a business bank account and accountant already so this is an unwelcome cost.”
Whatever your view, MTD is on its method and it’s greatest to arrange now.
Who is affected by MTD?
If you’re a sole dealer and/or landlord with a qualifying earnings of greater than £50,000 for the 2024/25 tax yr, you’ll have to adjust to MTD from 6 April 2026.
The threshold falls to £30,000 from April 2027, and then to £20,000 in April 2028.
MTD has already been launched for VAT-registered companies. These corporations may have a headstart when complying with MTD IT guidelines – however will probably be a serious change for different sole merchants and landlords.
I’m a sole dealer. What do I have to do?
From April 2026, everybody who falls underneath MTD might want to make quarterly digital submissions to HMRC.
These will embody a abstract of earnings and bills for every quarter, with deadlines on the seventh of the month after the quarter ends. No tax is calculated or payable at this stage – it’s simply reporting.
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By 31 January following the tax yr finish (i.e. 31 January 2028 for the 2026/27 tax yr), a ‘final declaration’ turns into due. This might be just like the present self-assessment return, however might be pre-populated with the earnings and bills from the quarterly updates already filed.
However, these entries will should be adjusted for accounting and tax functions – for instance, disallowing parts of personal use or capital expenditure.
The cost deadline dates for earnings tax will stay the similar as underneath the present self-assessment system: 31 January and 31 July annually.
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What software program do I would like?
All submissions must be made by MTD-compatible software program. You can both use “bridging” software program which submits knowledge from spreadsheets to HMRC, or full-MTD appropriate software program which does the whole lot.
A record of appropriate software program suppliers is obtainable on the Gov.UK website, together with free and paid-for choices from corporations equivalent to Coconut, 123 Sheets, FreeAgent and Xero.
Arjun Kumar, founding father of Taxd, says: “There’s a misconception that you have to use expensive, fully integrated software for this. The truth is, you can still use a simple spreadsheet for your digital records.
“However, software is the smart choice. It can connect directly to your accounts, automatically categorising everything and keeping you audit-ready. For those who are wary of that level of integration, ‘bridging software’ is the perfect middle-ground, it simply sends your quarterly data to HMRC without needing direct access to your books.”
Are taxpayers prepared for the new regime?
A survey by accounting software program agency FreeAgent final summer time discovered a worrying lack of understanding about MTD – nearly two in each 5 (39 per cent) survey respondents mentioned that they had by no means even heard of it.
Jon Martingale, head of product administration at FreeAgent, says: “This lack of clarity seems to stem from the complexity of the changes and the varied ways people access information. While many are turning to software providers or accountants for support, our data shows that nearly 60 per cent still feel they haven’t had enough guidance to fully understand what’s coming.”
Despite doing a completely dismal job of publicising MTD, HMRC is introducing a points-based penalty system for non-compliance from April 2026.
Each late quarterly submission earns one penalty level, with 4 factors equalling a £200 penalty. Points expire after 24 months if compliance improves.
“This system is more lenient than immediate fines, especially for occasional mistakes, and gives taxpayers a chance to improve. However, for those who consistently miss deadlines, the fines can add up,” mentioned Brad Wilkinson at accountancy observe Ascendis, “Whether they’re ‘fair’ is subjective. Some argue that the system is burdensome, especially for landlords or sole traders with simple tax affairs. Supporters say it encourages better compliance and brings tax in line with modern digital standards.”
Sole merchants and landlords can signal as much as a HMRC pilot programme now – this can assist in attending to grips with the new system earlier than April.
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