Sole trader or landlord with income of £50k+? ACT NOW on new tax rules
You'll need to submit digital updates every three months
The Government is introducing changes to how some people report income tax. The scheme is called Making Tax Digital (MTD) and, if you’re eligible, you’ll need to keep digital records and report to HMRC every three months. Here's what you need to know, including the deadlines to be aware of, the software you'll need to use, and the penalties if you don't report on time.
Making Tax Digital – why is MSE covering it?
MSE is a consumer site, and as a rule we avoid business – even small business – issues. Yet this is such a fundamental shake-up to the way Self-Assessment tax is done, I thought it important that, at least for Making Tax Digital’s introduction, we mark it and use our reach to ensure people know what’s coming. So I asked the team to put this beginner’s guide together.
I must admit, some of this is driven by nervousness from what I’ve heard. I know some accountants near retirement, and heard of others, who have left the industry early as they don’t want to deal with the new scheme.
Some tax pros I’ve spoken to roll their eyes, and worry about the implementation and ‘are we ready?’. The concept of digitising taxes isn’t the issue. The worries I hear are over cost, complexity, timing and people’s readiness. How accurate that is I don’t know, this isn’t my area, yet time will tell. Either way though, if you need to do it, especially if you don’t have professional accounting help, the sooner you’re aware of what’s happening and can plan for it, the better.
With thanks to Rebecca Benneyworth MBE for sense-checking this guide.
The BIG CHANGES to the way some people report tax
If you're a sole trader or landlord with a gross income of more than £50,000 from self-employment and/or property, you’ll no longer file just one Self Assessment return a year.
Instead, from April 2026, you’ll need to keep digital records and send updates to HMRC every three months – plus a final year-end Tax Return.
That means five submissions a year instead of one, using software that's compatible with HMRC systems.
This is part of the Government’s ‘Making Tax Digital’ (MTD) scheme. While it’s designed to spread the workload, it also brings new admin, new deadlines (and ultimately penalties if you miss them).
If you're eligible, you'll need to do the following:
-
Create an account on HMRC online services by 1 April. If you've registered for Self-Assessment before, you can use the same user ID and password.
-
Create and maintain digital records of your income and expenses using software that's compatible with HMRC's systems. You won't be able to do this through HMRC's existing online Self-Assessment route. There's more on what software to use below.
-
Send updates of your income and expenses every three months (Quarterly Updates). The deadline for the first Quarterly Update is 7 August 2026 (for the period 6 April to 5 July 2026).
-
Complete your end-of-tax-year Tax Return, which should be submitted after your fourth Quarterly Update, and before the 31 January deadline (the current Self-Assessment deadline). If you have other income, such as interest on savings, you'll need to add this. You can make amends to Quarterly Updates before submitting your final Tax Return.
-
Pay your tax by 31 January, just as you would with Self-Assessment – so any tax you still owe for the previous tax year, and your first payment on account for the tax year ahead. We cover the deadlines in detail below.
What counts as 'qualifying income'
You’ll need to have a gross income of £50,000 or more from either rental income or self-employment income (or a combination of the two). You should calculate your qualifying income before you deduct any expenses. As an example, if your income was:
-
£21,000 gross income in rental payments
-
£31,000 turnover from self-employed income as a sole trader
Your total ‘qualifying income’ is £52,000, meaning you will need to use MTD from April. Even if your taxable income is only £20,000, MTD looks at gross income, so you'd be eligible from April 2026.
HMRC has a useful checker you can use to find out what is and isn't included as qualifying income.
You'll need to create digital records using compatible software
Under Making Tax Digital (MTD), you must keep digital records and submit updates to HMRC using compatible software. Paper records alone won’t be enough. There are two main ways to do this:
An all-in-one software that records your income/expenses and submits updates to HMRC.
A combination of tools, for example:
- spreadsheets, book-keeping software or a banking app for records
- plus 'bridging software' to send the data to HMRC
Will I need to pay for software?
You can choose between both free and paid for software options. Some products may have restrictions on how and when they can be used - for example, you might be limited in the number of invoices you can log or you may need to be earning less than a particular amount a year – so it's important to check they will work for you.
You can use the government's software finder tool to find HMRC-approved software that fits with your needs. It'll ask you about your tax reporting needs, including:
-
whether you’re a sole trader, landlord or both
-
what other income you need to report (eg State Pension, savings interest, Capital Gains)
You’ll then see software that should work for you, including whether it’s free or paid (though you’ll need to check exact costs and limits with the provider).
Software suggestions for Making Tax Digital
We're mentioning a few of the bigger names below, as well as a couple of options recommended by the tax expert we spoke to, as a starting point.
IMPORTANT: We haven't tested these ourselves, so make sure they're right for you before you sign up – especially if it's software you'll need to pay for. If in doubt, use the Gov's software finder tool to cross-check the suggestions against your individual reporting needs.
Sage – has free and paid-for options for non-VAT registered sole traders, though the free option only allows one bank account to be connected, and has a limit on invoice creation.
StarlingBank – offers free software you can use for self-employment and UK property income if you have a sole-trader account with them. You’ll have to manually add transactions from outside Starling.
Xero – has a range of paid-for plans covering different circumstances, including a low cost plan (£7 a month) for non-VAT registered sole traders and landlords. Make sure to check the details of each plan against your needs.
The tax expert we spoke to recommended the following options, which are both paid-for:
Absolute Excel Income Tax Filer – by Absolute Tax. It’s spreadsheet-based, around £50 a year, and you won’t be charged extra for having multiple streams of self-employment or rental income. If you already use spreadsheets, you can connect this software to your existing documents.
Untied – can be used on web or mobile app. It offers a 30-day free trial, but after that it’s £130 a year. This might be better if you want a more hands-off approach, as you can connect bank accounts for automated income and expense tracking.
Want to switch software?
You can change provider if you decide the one you're using isn't right for you, but plan ahead. You’ll likely need to import or recreate your records for the current tax year. And if you're using bridging software, you’ll also need to link it to your new system.
Things are changing for your expenses if you're a childminder eligible for MTD
If you are a childminder who needs to start using MTD, the following expenses agreements (known as HMRC BIM52751) will no longer apply to you:
-
The 'wear and tear allowance': a 10% deduction of your total taxable income to cover wear and tear to furniture and household items
-
Household expenditure agreement: a percentage deduction to your utility costs, including heating, council tax and rent, relative to hours worked
Instead, you will need to claim the cost of things you purchase solely for your childminding business and a proportion of the cost of items purchased that are used both for your business and personally at the end of tax year. This might be more complicated than what you have previously been used to, so it's a good idea to familiarise yourself with the changes as soon as possible.
If you don't need to use MTD, you can still use the existing expenses agreement for wear-and-tear and utilities. More information on the agreement can be found on Childminder expenses page of Gov.uk.
The deadlines you need to know
With MTD updates being more frequent than with Self-Assessment (and the penalties if you miss these), it's a good idea to set reminders and alerts for each Quarterly Update deadline, as well as for your Tax Return and tax payment.
Here are the key MTD deadlines for the tax year starting 6 April 2026 below. In places they overlap with the Self-Assessment deadline for the previous 2025/26 tax year (highlighted in red) :
6 April 2026 | Start keeping digital records using compatible software. |
7 August 2026 | 1st deadline to send your Quarterly Update for the period 6 April to 5 July 2026. |
7 November 2026 | 2nd deadline to send your Quarterly Update for the period from 6 April to 5 October 2026. |
31 January 2027 | Deadline to submit a Self-Assessment Tax Return in the usual way for the previous 2025/26 tax year. |
7 February 2027 | 3rd deadline to send your Quarterly Update for the period 6 April 2026 to 5 January 2027. |
7 May 2027 | 4th deadline to send your Quarterly Update for the period 6 April 2026 to 5 April 2027. |
7 August 2027 | 1st deadline to send your Quarterly Update for the period 6 April to 5 July 2027. |
7 November 2027 | 2nd deadline to send your Quarterly Update for the period 6 April to 5 October 2027. |
31 January 2028 | Deadline to submit your MTD Tax Return and pay your income tax for 2026/27. |
If you prefer, you can choose to match your Quarterly Update periods to the calendar year. These end on the last day of the month and will make your record keeping simpler if your accounting period ends on 31 March.
If you'd like to do this, you need to find software that has this functionality and set it to send calendar update periods before your first update is due for the tax year. The table below shows the deadlines and update periods if you'd prefer doing it this way:
Deadlines | Update period |
|---|---|
7 August 2026 | 1 April to 30 June 2026 |
7 November 2026 | 1 April to 30 September 2026 |
7 February 2027 | 1 April to 31 December 2026 |
7 May 2027 | 1 April 2026 to 31 March 2027 |
Making Tax Digital (MTD) is being rolled out in phases
If you’re not included this year because your gross income is less than £50,000, you might be included in following years as the income thresholds reduce:
Income over £50,000: from 6 April 2026
Income over £30,000: from 6 April 2027 (based on your tax return for 2025/26)
Income over £20,000: planned from 6 April 2028 (based on your tax return for 2026/27)
You can opt in early if you want to get used to the new system. You can use this HMRC checker to check your eligibility.
However, be aware that if you do decide to opt in early, you'll then be bound by the rules and deadlines of the new system – including the penalties that apply.
Miss the deadlines and you could face penalties
Important: We're confirming the details on late submission penalties
The tax experts we've spoken to have told us they expect the late submission penalty points to work slightly differently than HMRC has set out. We're working on getting to the bottom of it, and will update this guide as soon as possible. However, as HMRC are taking a more lenient approach to penalty points for the first year, it shouldn't matter too much for now.
In the meantime, we've set out what HMRC have told us about how the penalty points will work below.
Miss some of the new deadlines and you could get penalty points leading to a charge – though there's a more lenient policy for the 2026/27 tax year. HMRC has said:
-
No penalties for late Quarterly Updates
-
You can still be penalised for late Tax Returns and late payments
-
Record-keeping penalties still apply
There will usually be three types of penalties that will apply under MTD:
1. Late submission penalties
-
1 point for each missed deadline
-
4 points = £200 fine
-
Another £200 for each further miss
In 2026/27, this applies to the end-of-year Tax Return only (not Quarterly Updates).
Penalties work differently if you've opted in early
If you've opted in to use MTD before you need to, you'll not get any penalties for missed Quarterly Updates. BUT, because you have less opportunity to accrue them, you will receive a £200 fine after 2 penalty points rather than the 4-point threshold that applies to people who are required to use MTD.
An example of how this will work:
If you earn £20,000 in income from being a sole trader or landlord, you will have to use MTD from 6 April 2028. If you volunteer to use MTD from 6 April 2026:
-
and are late submitting your 2026/27 Tax Return as well two quarterly updates for the 2027/28 tax year, you WILL NOT receive a penalty as you will only accrue one penalty point for the missed Tax Return.
-
BUT if you're late submitting both your 2026/27 AND your 2027/28 tax return, you WILL receive a £200 penalty fine because you'll have received one penalty point for each Tax Return you submitted late.
The 2-point threshold will apply across any years where it is not compulsory for you to use MTD. Once it is compulsory for you, you will need to have 4 penalty points before you receive a £200 fine. Any points accrued during your opt-in period will be removed when MTD becomes compulsory for you, so you start again with a clean slate.
2. Late payment penalties
-
Interest charged from day one (currently 7.75%)
-
3% penalty after 15 days
-
6% after 30 days
-
Extra daily penalties after that
First year only: you'll have up to 30 days to pay your tax or to contact HMRC to make a Time to Pay agreement before penalties kick in (instead of 15 days)
Example of a late payment penalty
If you’ve got a tax bill of £3,000 due on 31 January and you pay it on 9 February (9 days late), you’d escape a penalty fine, but you’d still pay interest for each day beyond the deadline.
If you paid it on 18 February (18 days late), you’d get a penalty of 3% of the whole bill — so, in this case, £90 – plus any interest accrued.
If you still haven’t paid your bill by 3 March (31 days after the deadline), you’d receive another 3% penalty – so another £90 fine (amounting to a total penalty of £180) – plus daily penalty interest calculated at an annual rate of 10%. This rate of penalty is in addition to the normal interest rate which is set at 4% over the Bank of England base rate – so currently 7.75%.
3. Record-keeping penalties
You must keep proper digital records using compatible software, and there are potentially severe penalties (of up to £3,000) if you fail to do this. In reality though, if you make a genuine mistake, HMRC says it won't apply a penalty if you can show you took reasonable care to do things right. The higher penalties are if errors are careless or deliberate.
Important: These penalties don't apply to your Quarterly Updates, even after your first year of using MTD. You're able to correct errors in your Quarterly Updates after they are submitted. The penalties for error apply only to your Tax Return, which is where you confirm your final tax position.
Penalty points will reset after a set time
If you stay below the 4-point threshold, each of your penalty points will be removed automatically 24 months after it was applied.
If you reach or exceed the threshold, as well as being fined, your points will remain until you have completed a period of 12 months in which you meet every Quarterly Update and Tax Return deadline. You will also need to submit any outstanding updates or declarations.
The relevant dates for the expiring and resetting of penalty points will be available through your HMRC Online Services account.
Can I be exempt from using Making Tax Digital?
Most eligible people will need to use MTD – unfortunately simply not wanting to do it isn't going to be a valid excuse. There are some exceptions though:
You're AUTOMATICALLY exempt indefinitely if:
You’re filing for someone else using Power of Attorney or a court-appointed authority (eg due to lack of mental capacity)
You’re acting as the Personal Representative of someone who has died
You don’t have a National Insurance number
You’re filing as a Trustee (including charities and some pension schemes)
Some other exemptions apply temporarily for certain tax years – see HMRC guidance for full details.
You can APPLY for an exemption if you're 'digitally excluded'
If it’s not reasonable for you to use software, you might be classed as ‘digitally excluded’. This could apply if, for example:
-
Age, disability or a health condition prevents you using digital devices
-
You don’t have reliable internet access and can’t reasonably use alternatives
HMRC will assess applications case by case. You WON'T qualify just because:
-
You’ve always filed paper returns
-
You’re not confident with software
-
You only have a small number of records
-
It would take extra time or cost to comply
If you think you are digitally excluded, you can apply for an exemption by:
-
Calling HMRC on 0300 200 3310
-
Writing to: Self Assessment, HMRC, BX9 1AS.
If writing, include the heading: 'Making Tax Digital for Income Tax – Digitally Excluded Exemption'
If you're eligible to start using MTD from April 2026 the exemption application process is open, and you should apply as soon as possible.
For more on applying for a digital exemption, who can apply and what you need to supply, see the Gov page on applying for an exemption.
Need more support?
If you need more help to understand what the new changes will be, whether they apply to you, and what you need to do, HMRC has created a series of videos and webinars to guide you. Alternatively, if you have any questions, you can get in touch with HMRC by:
-
calling them on 0300 200 3310
-
writing to them at: Self Assessment, HM Revenue and Customs, BX9 1AS, United Kingdom.
If you think that MTD might be a significant burden on you, it might also be a good idea to consider appointing an accountant to handle things for you.
At the moment, as the income threshold is quite high at £50,000, there is limited charity-based support for the cohort due to start using MTD in April, but there are a few sector-specific charities which may be able to offer advice and guidance:
-
Lighthouse is a charity for people working in the construction industry and has a 24/7 helpline service
-
Film and TV Charity has a 24-hour helpline as well as a live chat service for people in the film, TV and cinema industries
-
Journalists' Charity provides advice over the phone or via email for freelance journalists
If you earn between £20,000 and £29,999 you won't need to start using MTD until 6 April 2028, but if you want to start preparing early or are thinking about opting-in sooner, TaxAid has advice on their website as well as a helpline available for people on lower incomes (around £28,000 and under).
Making Tax Digital FAQs
Will the due dates for paying tax change under MTD?
No, your income tax is still due to be paid by 31 January in the year after you submit your tax return.
So if you need to use MTD for the 2026/27 tax year, you will need to pay your income tax by 31 January 2028.
If my income drops below the threshold after being above in a previous year, do I still need to use MTD?
You will be able to choose to opt out of using MTD if your income drops below the threshold for 3 years in a row.
Updates you've sent will be deleted for the tax year you're opting out for if you've submitted any.
Remember though that the threshold will be lowered over the next few years as MTD is phased in.
If you opt out, you will return the Self-Assessment method. You can see more information about this on our self-assessment guide.
What about income covered by property/trading allowances or Rent a Room relief?
Income from these sources will NOT count towards your MTD 'qualifying income'.
BUT, if you earn over the threshold for MTD eligibility you will need to record your property income and expenses covered by the scheme and include it in your quarterly updates if either you:
-
used the Rent-a-Room Scheme for your home and received income from another UK property on your last Self Assessment tax return
-
did not receive any other UK property income but the gross income from your UK property was more than the Rent-a-Room Scheme threshold on your last self-assessment tax return.
For example, in your tax return for the 2024 to 2025 tax year you declared UK property income of £55,000. You made use of the Rent-a-Room allowance, but were not required to declare the income, as it was below the Rent-a-Room threshold. In the 2026 to 2027 tax year, you’ll need to create digital records for all your property income, including your Rent-a-Room income.
How is income from jointly-owned property counted?
You only need to count your share of the property income for the purposes of your 'qualifying income'. For example, you:
-
jointly own a property with your sibling which generates £50,000 in income
-
both receive an equal share
-
do not have any income from self-employment
In this example, your qualifying income would be £25,000. You do not need to link your digital records to the records of the other landlord.
I've made a mistake on my digital records, can I fix it?
If you realise you've made a mistake after you've submitted a quarterly update - this might be that you forgot to record some income or expenses - you can correct it.
If you notice a mistake during the tax year and you use your existing software to create digital records you will need to either import your digital records for the current tax year into your new software or recreate the records in the new software and submit them at the next quarterly update.
If you notice a mistake after you have submitted your tax return, you should contact HMRC as soon as possible.
How long will I need to store my digital records?
You will need to keep your digital records for at least 5 years after the 31 January submission deadline for a tax year.
This is the same as under the self assessment process.
I'm unable to pay my tax on time - what can I do?
If you're unable to pay your income tax by the deadline, you should contact HMRC to organise a Time to Pay arrangement as soon as possible. You should do this before the tax bill becomes overdue to avoid any penalties.
If you're eligible, you can set up a payment plan online or by contacting HMRC.
What about the Construction Industry Scheme (CIS)?
If you’re a contractor registered with the scheme, you’ll still need to send your CIS returns monthly to get deductions. You can use software that handles both CIS and Making Tax Digital. Ask software providers about this.
Are you a subcontractor? When the new system kicks in, you’ll just include any CIS deductions in your quarterly updates. Some software will even do CIS deductions automatically for you.
Find out more about the Construction Industry Scheme on GOV.UK
Where can I build my digital skills to get ready for using MTD?
The National Careers Service has a guide on free training that’s out there, including courses that cover digital record keeping.
Share this guide?
