HM Revenue and Customs (HMRC) has issued a six-month warning to thousands of sole traders and landlords ahead of a major change to how they report their tax. From April 6, 2027, sole traders and landlords with more than £30,000 in qualifying income from self-employment and property will have to start using Making Tax Digital (MTD) for Income Tax. The system will require those affected to keep digital records and use compatible software to send updates to HMRC every three months.
Biggest change since Self Assessment
HMRC has described the shake-up as the biggest change to Income Tax since Self Assessment was launched more than 30 years ago. In a warning posted on X, the tax authority said: "There are just six months to go until sole traders and landlords with turnover above £30,000 must start using Making Tax Digital. Unsure what this means for you? We’re here to bust the most common myths about Making Tax Digital for Income Tax. Get ahead and sign up today."
Despite the introduction of quarterly updates, HMRC has stressed that people will still need to submit an annual tax return and pay their tax by the existing deadlines. In a video accompanying the warning, HMRC said: "A lot of people think that Making Tax Digital replaces your annual tax return. It doesn't. You still have to file your tax return by the same date, and you still have to pay by the same date. The only difference is you do this via your software, and we'll automatically populate the return with any information we already hold."
Quarterly updates and software
Those affected will need to use compatible software on a phone or computer to keep digital records of their income and expenses. The software will then use this information to create summaries which are sent to HMRC every three months. These quarterly updates are not separate tax returns and do not change how often people have to pay their tax.
The new rules are being introduced in stages. Sole traders and landlords with qualifying income above £30,000 will have to use MTD from April 6, 2027, followed by those above £20,000 from April 6, 2028. HMRC is urging people to prepare by checking when the rules apply to them, choosing compatible software and signing up before their start date.
Penalties and preparation
There are both free and paid software options, while bridging software is available for people who want to continue using spreadsheets. Penalties are also changing under the new system, with a points-based approach being introduced for missed submission deadlines. HMRC explained: "Late submission penalties are changing to be points-based, a bit like driving licence points. When you hit a certain threshold, that's when a financial penalty will apply."
For quarterly obligations, reaching four penalty points can result in a £200 penalty, with further penalties possible if deadlines continue to be missed. However, HMRC said people already using MTD will not receive penalty points for missing quarterly update deadlines during the 2026/27 tax year, although the updates will still be a legal requirement. Penalties can still apply for late tax returns and late tax payments. People can check when MTD applies to them and find compatible software through GOV.UK.
