Making Tax Digital for Income Tax: What UK Sole Traders and Landlords Need to Know

Since 6 April 2026, a large group of UK sole traders and landlords have had to change the way they report income to HMRC. Instead of one tax return a year, they now keep digital records and send quarterly updates through compatible software.

This is Making Tax Digital, and it is widening quickly. From April 2027 it reaches anyone with qualifying income over £30,000, and from April 2028, anyone over £20,000. If you are self-employed or let out property, there is a good chance it affects you sooner than you think.

Here is a plain-English guide to what it is, who it applies to, and what to do now.

What is Making Tax Digital?

Making Tax Digital (MTD) is HMRC’s programme to move tax reporting away from paper, spreadsheets and once-a-year returns, towards digital records kept in software, with information sent to HMRC directly from that software.

It has arrived in two main stages so far:

• MTD for VAT began in April 2019 and has applied to every VAT-registered business since April 2022.
• MTD for Income Tax began on 6 April 2026 for self-employed people and landlords, and is being phased in by income level.

Who has to use MTD for Income Tax, and when?

It depends on your qualifying income: your total gross income from self-employment and UK property, before expenses. HMRC uses the figure from an earlier tax return to decide your start date.

• Over £50,000 on your 2024/25 return — MTD applies from 6 April 2026.
• Over £30,000 on your 2025/26 return — MTD applies from 6 April 2027.
• Over £20,000 on your 2026/27 return — MTD applies from 6 April 2028.

The key word is gross. The threshold is based on turnover, not profit. A taxi driver taking £32,000 in fares, with £14,000 of fuel, insurance and vehicle costs, makes a profit of £18,000 — but their qualifying income is £32,000, so they are in scope from April 2027.

Income sources are added together, too. Someone earning £18,000 from self-employment and £15,000 in rent has qualifying income of £33,000.

What does not count: salary from employment and dividends are not qualifying income, and limited companies are not covered by MTD for Income Tax. A company director who also receives rental income in their own name, however, may still be in scope.

What actually changes

• Digital records. Income and expenses are recorded in MTD-compatible software throughout the year, rather than gathered up in a rush before January.
• Four quarterly updates. A summary of income and expenses goes to HMRC every quarter, with a separate update for each income source — for example, one for your self-employment and one for your property.
• A final declaration. After the tax year ends, you finalise your figures and submit a final declaration by 31 January. This takes the place of the traditional Self Assessment return.

The standard quarterly deadlines are 7 August, 7 November, 7 February and 7 May.

One common worry is worth clearing up: a quarterly update is not a tax bill. The dates on which you pay your tax have not changed. The updates simply keep HMRC informed as the year goes on.

Penalties: why April 2027 is different

MTD comes with a new points-based penalty system. Each late submission earns a penalty point, and once a quarterly filer reaches four points, HMRC charges a £200 penalty — with a further £200 for each late submission after that.

The first group, who joined in April 2026, were given a soft landing: no penalty points for late quarterly updates during the 2026/27 tax year. That concession covers the 2026/27 tax year only. As things stand, people joining in April 2027 will pick up points from their very first late update.

Late payment penalties have changed as well. They now begin once tax is 15 days overdue (30 days during your first year under the new rules), and interest still runs on anything unpaid.

Already VAT-registered? Check your digital links

MTD for VAT has been around long enough that many businesses assume it is sorted. It is worth checking. HMRC’s rules require digital links between every piece of software involved in producing your VAT return. Retyping or copying and pasting figures from one system into another does not count.

Microsoft Dynamics 365 Business Central has a built-in MTD for VAT extension that retrieves your VAT periods from HMRC and submits returns directly. SAP Business One can submit through HMRC-listed add-ons. In both cases the setup matters: VAT codes mapped to the correct return boxes, and no manual step between your ledger and HMRC.

If your VAT return still involves a spreadsheet that someone types numbers into, that is a compliance gap worth closing.

What to do now: a five-step checklist

1. Work out your qualifying income. Add up your gross self-employment and property income for 2025/26. If it is over £30,000, MTD applies to you from April 2027.
2. Choose MTD-compatible software. HMRC publishes a list of compatible products. For most sole traders and landlords, a straightforward cloud bookkeeping package is all that is needed — you do not need an ERP system for this. (If you hold stock or run a larger operation and your current package is already struggling, our guide to 5 signs your business has outgrown Xero or QuickBooks may be more relevant.)
3. Start keeping records digitally now. Open a separate business bank account if you do not already have one, connect a bank feed, and use a receipt-capture app. Building the habit before you are required to is far easier than catching up afterwards.
4. Sign up in good time. You, or an agent acting for you, must sign up for MTD for Income Tax. HMRC writes to people it believes are in scope, but do not wait for the letter.
5. Diary the deadlines and do a dry run. Put all five dates in your calendar — four quarterly updates plus the final declaration — and practise a quarter before it counts.

How Oskar Systems can help

Our core work is SAP Business One and Business Central. But the problem MTD creates — getting a business’s records out of paper and spreadsheets and into a system that works — is the problem we solve every day, just at a smaller scale.

• MTD readiness check — we help you work out whether you are in scope, when you start, and which income sources need their own updates.
• Software selection and setup — the right MTD-compatible package for your business, with bank feeds, categories and receipt capture configured properly from day one.
• Hands-on training — so you or your team are confident keeping records and preparing each quarterly update.
• MTD for VAT review — for VAT-registered businesses on SAP Business One or Business Central, a check of your VAT setup and digital links.

We work alongside your accountant, not instead of them. If you already have one, we make sure the records they receive are clean, complete and on time.

If April 2027 is coming for you, now is the time to get set up. Book a free consultation — and if all you need is a simple bookkeeping app set up properly, we will tell you so.

This article is general information, not tax advice. Thresholds, deadlines and penalty rules can change, so check GOV.UK or speak to your accountant about your own circumstances. Information correct as of October 2026.

Oskar Systems Ltd is a UK ERP consultancy working with SAP Business One and Microsoft Dynamics 365 Business Central, helping small and mid-sized businesses move from spreadsheets and accounting software to properly integrated systems.