Making Tax Digital for Income Tax is one of the biggest changes to the way some sole traders and landlords report their income and expenses to HM Revenue & Customs. Instead of relying mainly on one annual Self Assessment process, qualifying individuals must keep digital records and provide HMRC with information throughout the tax year using compatible software.
From 6 April 2026, Making Tax Digital for Income Tax applies to qualifying sole traders and landlords whose total qualifying income from self-employment and property was more than £50,000 in the relevant previous tax year. The threshold will reduce to more than £30,000 from 6 April 2027 and more than £20,000 from 6 April 2028.
An important point is that qualifying income is broadly based on your gross income from self-employment and property before expenses are deducted. This means you should not look only at your taxable profit when deciding whether Making Tax Digital applies to you.
Under Making Tax Digital, qualifying taxpayers need to use compatible software to create and maintain digital records of their business and property income and expenses. The software must also be capable of communicating with HMRC so that the required information can be submitted digitally.
You will generally need to send quarterly updates to HMRC containing summaries of your self-employment and property income and expenses. These quarterly submissions are intended to provide HMRC with more regular information during the year rather than waiting until the annual tax return is prepared.
Quarterly reporting does not remove the need to deal with your final tax position. You will still need to review your information, make any necessary adjustments and submit your required tax information by the relevant deadline. HMRC guidance states that those using Making Tax Digital for Income Tax will still submit their tax return by 31 January following the tax year.
For many sole traders, one of the biggest changes will be moving away from spreadsheets, paper receipts or bookkeeping that is updated only once a year. Keeping records digitally throughout the year will become much more important.
Landlords can also be affected. If you receive property income alongside income from self-employment, both sources can count towards your qualifying income when determining whether you need to use Making Tax Digital.
Good bookkeeping will therefore become even more valuable. Recording income and expenses regularly can make quarterly updates easier and reduce the amount of work required shortly before a reporting deadline.
Businesses should also review whether their existing accounting or bookkeeping software is compatible with Making Tax Digital for Income Tax. Not every system will necessarily provide all of the features you require, so choosing appropriate software before your reporting obligations begin can prevent unnecessary problems.
If you work with an accountant or tax adviser, they may be able to help manage the Making Tax Digital process on your behalf. However, you will still need to provide complete and accurate information throughout the year.
Preparing early is particularly important for businesses that previously organised their bookkeeping only when their Self Assessment Tax Return became due. Moving towards regular monthly bookkeeping can make the transition to quarterly digital reporting significantly easier.
At EasyFig, we help sole traders and landlords organise their bookkeeping, prepare digital records and understand their Making Tax Digital responsibilities.
Need help getting ready for Making Tax Digital? Book a free consultation with EasyFig today.