HMRC making 'significant change' to income tax with landlords and sole traders affected

HMRC is urging sole traders and landlords with a qualifying income to sign up to a testing programme and start preparing now as the new change will be introduced in less than a year

With less than a year to go until sole traders and landlords earning over £50,000 will be required to use Making Tax Digital (MTD) for Income Tax, the launch on April 6, 2026 marks a significant shift in how these individuals will need to maintain digital records and report their income to HM Revenue and Customs (HMRC).

By maintaining digital records throughout the year, sole traders and landlords can save hours previously spent collating information before the tax return deadline. The government hopes that this will allow them to dedicate more time to their business activities, thereby driving economic growth as part of their Plan for Change.

HMRC estimates that around 780,000 self-employed individuals and landlords will be required to use MTD for Income Tax from April 2026, with an additional 970,000 joining in 2027.

Quarterly updates will distribute the workload more evenly throughout the year, bring the tax system closer to real-time reporting, and assist businesses in managing their finances and avoiding the last-minute rush.

HMRC is encouraging eligible customers to sign up for a testing programme on GOV.UK and start preparing now. Agents can also register their clients via GOV.UK, reports the Daily Record.

James Murray MP, Exchequer Secretary to the Treasury, has expressed his support, stating: "MTD for Income Tax is an essential part of our plan to transform the UK's tax system into one that supports economic growth. By modernising how people manage their tax, we're helping businesses work more efficiently and productively while ensuring everyone pays their fair share."

He added, "This is a crucial step in this government's decade of national renewal and our Plan for Change, as we clear away barriers that hold back growth."

Craig Ogilvie, HMRC's Director of Making Tax Digital, also commented on the changes, saying: "MTD for Income Tax is the most significant change to the Self Assessment regime since its introduction in 1997. It will make it easier for self-employed people and landlords to stay on top of their tax affairs and help ensure they pay the right amount of tax.

"By signing up to our testing programme now, self-employed people and landlords will be able to familiarise themselves with the new process and access dedicated support from our MTD Customer Support Team, before it becomes compulsory next year."

Starting from April 2026, individuals with qualifying income over £50,000 will be required to maintain digital records, utilise MTD-compatible software, and submit quarterly summaries of their income and expenses to HMRC. The move towards digitalisation aims to streamline record-keeping for businesses, minimise errors in tax calculations, and offer a more transparent view of tax responsibilities throughout the fiscal year.

Qualifying income encompasses gross income from self-employment and property before any tax allowances or expenses are deducted. Those with qualifying income exceeding £30,000 will also be required to adopt MTD for Income Tax from April 2027.

The threshold will then drop to £20,000 from April 2028.

The gradual roll-out of MTD for Income Tax follows the launch of MTD for VAT, which currently aids over two million businesses in reducing errors and saving time on their tax matters. Businesses that participated in the MTD for VAT testing phase were better equipped for the transition to quarterly reporting.

A 2021 independent report revealed that 69 per cent of mandated businesses experienced at least one benefit from MTD for VAT, while 67 per cent reported that it minimised the potential for errors in their record keeping.