making tax digital (MTD) for income tax: what you need to know now
From next month, one of the most significant changes to personal tax reporting in decades will come into force.
The government’s Making Tax Digital (MTD) for Income Tax initiative will fundamentally change how sole traders and landlords report their earnings to HM Revenue & Customs.
For many, this will mean moving from a single annual tax return to multiple digital submissions throughout the year.
At annabel, we are already helping clients prepare. Below, we answer the most common questions.
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MTD is a government initiative designed to modernise the UK tax system.
Instead of submitting one Self-Assessment tax return per year, affected individuals will be required to:
✓ Keep digital records of income and expenses
✓ Submit quarterly updates to HMRC
✓ Complete a final year-end declaration
The aim is to make tax reporting more accurate and more up to date -but it will require a significant shift in how records are kept and reported.
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From April 2026, MTD for Income Tax will apply to:
✓ Sole traders
✓ Self-employed individuals
✓ Landlords
With qualifying income over £50,000 per year (from self-employment and/or property combined).
From April 2027, the threshold is expected to reduce to £30,000.
If your total income from these sources exceeds the threshold, you will be required to comply - even if you currently file just one annual Self-Assessment return.
HMRC has an interactive tool to check if and when you need to use MTD and next steps needed but you should have been notified by HMRC already if you do qualify for this year (2026).
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Qualifying income refers to total gross income (before expenses) from self-employment, other business earnings and property (including both UK and overseas property income for UK residents). It excludes income from employment, partnership profits, investment income such as dividends and qualifying care receipts.
For landlords who jointly own property, only your share of the gross rental income (before expenses) is considered. Retained damage deposits are also included as gross income.
HMRC assess your qualifying income based on certain boxes from your previous year’s self-assessment tax return, namely the business income, property income, furnished holiday lettings income and foreign property income boxes.
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The key changes are:
1. Digital Record Keeping
Spreadsheets alone may no longer be sufficient unless they are compatible with HMRC-recognised bridging software. Most individuals will need dedicated accounting software.
In your digitally compatible software you must have separate categories set up for self-employed income and property income to differentiate between the two.
2. Quarterly Submissions
You will need to submit a summary of income and expenses every three months, for each business and property, based on the Tax Quarter, or if opted-for, the Calendar Quarter.
That means four submissions per year, instead of one, per business and property (although payment deadlines remain as per the current system):
7 August 2026 - Quarter 1 filing deadline
7 November 2026 – Quarter 2 filing deadline
31 January 2027 – Self-assessment return for 2025/26 to be filed as per existing process
7 February 2027 – Quarter 3 filing deadline
7 May 2027 – Quarter 4 filing deadline
3. Final Declaration
At the end of the tax year 2026/27, and with a deadline of 31 January 2028, a final declaration submission via MTD software will replace the traditional Self-Assessment tax return. The final declaration is where you disclose other income, such as savings and investments and PAYE income and submit any claims for relief
In practical terms, this means more administration, more deadlines, and far less flexibility to “leave it until January.”
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Not entirely.
There will still be an end-of-year process to finalise your tax position. However, the structure and submission method will change.
The bigger shift is behavioural: tax reporting will become an ongoing, real-time obligation rather than an annual event.
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MTD will operate under a new penalty regime.
Late submissions and late payments will attract points-based penalties, meaning repeated delays could result in financial consequences more quickly than under the current system.
In short: organisation will become critical.
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Landlords are one of the most affected groups.
If your gross rental income exceeds the threshold:
✓ Each property’s income and expenses must be digitally recorded
✓ Quarterly updates will be mandatory
✓ Greater visibility of your tax position throughout the year will be required
Property owners must declare UK property income and foreign property income. You can group UK properties and non UK properties together in their own categories. However, if foreign property income comes from various different countries you need to set up different accounts for these different countries.
For landlords with multiple properties, mixed-use portfolios, or additional self-employed income, complexity increases significantly.
It is particularly complex for landlords with jointly owned property as the new compliance rules mean computing their share of income and expenses each quarter, requiring them to transfer transactional records to one another. To reduce this administrative burden, landlords will be able to choose not to submit quarterly updates of their expenses which relate to jointly owned properties.
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Unfortunately, for the majority of sole-traders and landlords whose qualifying income meets the threshold (£50,000 for 2026–27, £30,000 for 2027–28, and £20,000 thereafter), this is mandatory.
The exemptions issued to date by HMRC include:
Digital exclusion - if you are unable to use digital tools due to age, disability, or location, you may apply for an exemption by notifying HMRC and receiving confirmation.
New businesses - for businesses established on or after 6 April 2025, the digital start date will be 6 April in the tax year following the year in which the first Self-Assessment return is due.
Other exemptions – these include trustees, non-resident companies, non-UK domiciled individuals (for their foreign businesses), those without a National Insurance number by the relevant date, and individuals providing qualifying foster care.
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Yes, it certainly does apply if your UK income (typically rental income) is over the threshold. However, overseas trading and foreign property income is not included as qualifying income.
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Worried — no.
Prepared — absolutely.
For organised individuals already using accounting software, the transition may be manageable.
For those who:
✓ Keep paper records
✓ Rely on spreadsheets
✓ Only think about tax once a year
✓ Or have complex income streams
This change will feel substantial.
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Preparation takes longer than most expect.
We recommend:
✓ Reviewing your current record-keeping process
✓ Identifying whether your income exceeds the threshold
✓ Assessing whether your software (if any) is compliant
✓ Creating a structured quarterly reporting plan
Most importantly, avoid leaving this until the final date for your first submission!
how annabel can support you
Making Tax Digital is not simply a software upgrade — it is a shift in how you manage your financial administration.
At annabel, we provide structured, discreet, hands-on support to:
✓ Set up compliant digital systems
✓ Organise and categorise financial records
✓ Liaise with accountants
✓ Monitor quarterly submission deadlines
✓ Reduce administrative stress
Our role is to ensure you remain compliant without it becoming a burden.
For many of our clients - particularly busy professionals, business owners and landlords - the value lies not in understanding every technical detail, but in knowing it is being managed correctly.
If you would like to discuss how Making Tax Digital may affect you, we are here to help.
Early preparation allows for calm implementation.
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