Here’s what the new rules mean – and how to get ready – by Arjun Kumar, Founder, Taxd
If you’re self-employed or earn income from property, and your annual income exceeds a certain threshold, you’ll soon be required to file your taxes through HMRC’s Making Tax Digital (MTD) platform.
From April 2026, MTD for Income Tax becomes mandatory for sole traders and landlords with qualifying income over £50,000. A year later, the threshold drops to £30,000. And with government plans to lower the bar to £20,000 in future, even more taxpayers will soon be brought into the fold.
If you’re registered for Self Assessment and fall within these income bands, now’s the time to get ready for a more digital – and more frequent – approach to tax reporting.
It sounds onerous, but needn’t be.
The MTD initiative, aimed at modernising and simplifying the tax system, will affect millions of British taxpayers. Now’s the time to understand what MTD means for you – and how to prepare before it becomes mandatory.
What is MTD?
MTD is HMRC’s long-term strategy to transform tax administration, replacing the traditional once-a-year tax return with a system of digital record-keeping and more regular reporting. Initially rolled out for VAT in 2019, MTD is now expanding to include Income Tax Self Assessment (ITSA), which will affect sole traders and landlords across the UK.
Under MTD for Income Tax, affected individuals will need to keep digital records and submit updates to HMRC every quarter, followed by an annual End of Period Statement and a final declaration. It’s a shift designed to reduce errors, improve transparency, and encourage better financial habits, but it also means taxpayers will need to adapt.
Who needs to comply – and when
From 6 April 2026, MTD will apply to self-employed individuals and landlords with qualifying income over £50,000. A year later, from April 2027, the threshold lowers to £30,000. The government has also announced plans to eventually bring in those earning over £20,000, though legislation for this third phase is still in the works.
To be clear, you’ll need to comply if you meet all of the following conditions: you have an NI number, you’re registered for Self Assessment, you receive income from self-employment or property, and your qualifying income exceeds the relevant threshold. HMRC will use your tax return to assess whether MTD applies and will notify you by letter, but don’t wait for that. If you’ve recently become a landlord and now earn over £20,000 in rental income, for example, you could be brought into MTD even if you haven’t filed a Self Assessment before. It’s your responsibility to check, and you could face penalties if you miss your start date.
Those earning £20,000 or less will not need to comply for now, and exemptions apply in certain cases, such as for people with digital exclusion or specific personal circumstances, but these must be approved by HMRC.
What changes?
If you’re used to filing one tax return a year, this is a big shift. MTD requires digital record-keeping, using HMRC-recognised software, and quarterly submissions detailing your income and expenses. At the end of the tax year, you’ll still complete a final submission to confirm everything is accurate and up to date, but the process will now be more structured and spread out.
This doesn’t mean more tax; it just means more frequent updates. For many, especially those already managing their finances digitally, the change could bring benefits: improved cash flow awareness, fewer surprises, and faster error correction. But for others, it will require new habits and possibly new tools.
How to get ready
Preparation is key. Start by checking your qualifying income: HMRC includes earnings from all self-employment and property sources when calculating the threshold. If you’re over the limit for the relevant tax year, you’ll need to be MTD-compliant by the following April.
Next, consider how you’ll keep records. Paper and spreadsheets won’t cut it because MTD requires digital records via compatible software. Purpose-built software can streamline this process, making it easier to manage quarterly submissions, generate year-end reports, and stay compliant with minimal friction.
You’ll also need to think about how you manage your taxes. If you use an accountant, check that they’re MTD-ready. If you’re going it alone, you may need to authorise software, set up your HMRC account for MTD, and familiarise yourself with the new reporting timelines.
Finally, while you’re not required to sign up before your mandated start date, early adoption is encouraged. Signing up ahead of time gives you a chance to test the system, resolve any setup issues, and avoid last-minute panic.
The bottom line
MTD marks a fundamental shift in how individuals interact with the tax system. For many, it’s a wake-up call to start managing finances more proactively. While there’s still time before the rules kick in, the sooner you adapt, the smoother your transition will be.
MTD isn’t just another government scheme – it’s the future of tax in the UK. And with the right tools and preparation, it doesn’t have to be a burden. In fact, it might just make your financial life a little easier.
