August 2026 Tax Update

Making Tax Digital for Income Tax (MTD) is now live, representing one of the biggest changes to the Self Assessment system in recent years.

From 6 April 2026, MTD became mandatory for certain sole traders and landlords with qualifying income of more than £50,000. The first quarterly reporting deadline under the new system was 7 August 2026.

However, the next phase will bring significantly more taxpayers into the regime.

Who will need to comply from April 2027

From 6 April 2027, MTD for Income Tax will apply to individuals whose combined qualifying income from:

• self-employment; and
• property rental

is more than £30,000 per year.

Importantly, the £30,000 test is based on gross income before expenses, rather than taxable profit.

For example, a landlord receiving £18,000 of annual rental income who also has £20,000 of self-employed turnover would have combined qualifying income of £38,000 and could therefore fall within MTD.

Employment income, pensions and dividends are not included when determining qualifying income for this purpose.

What changes under MTD

Taxpayers within MTD will need to maintain appropriate digital accounting records and use MTD-compatible software.

They will generally be required to:

1. Keep digital records
Business and/or property income and expenses will need to be maintained digitally.

2. Submit quarterly updates
Information about income and expenses will be reported to HMRC through compatible software during the tax year.

3. Complete the year-end tax return
Quarterly reporting does not remove the requirement to finalise the individual’s tax position. Adjustments, allowances, reliefs, other income and capital gains may still need to be dealt with when completing the year-end tax return.

Don’t confuse turnover with profit

One of the most important points is that the MTD threshold looks at qualifying income before expenses.

A self-employed person may only make £15,000 of taxable profit but have turnover of £40,000. It is the £40,000 figure that is relevant when considering whether they fall within MTD.

Similarly, where someone has both rental and self-employed income, the relevant qualifying income is generally considered together.

What should you do now

If your 2025/26 Self Assessment tax return will show combined gross self-employment and property income of more than £30,000, you should consider whether MTD will apply to you from April 2027.

Although April may appear some time away, preparing early can avoid difficulties later. This may include:

• reviewing how your accounting records are currently maintained;
• moving from spreadsheets or manual records to suitable accounting software where necessary;
• ensuring rental income and expenses are recorded properly;
• checking that your bookkeeping is kept up to date throughout the year; and
• identifying whether any exemption may be available.

What about penalties

HMRC has provided some initial easement for taxpayers who entered MTD in April 2026, with no penalty points being issued for late quarterly updates during the 2026/27 tax year.

However, this should not be viewed as a permanent relaxation.

From 6 April 2027, the points-based penalty regime is expected to apply to missed quarterly deadlines. Once the relevant penalty threshold is reached, a £200 financial penalty can arise.

Looking further ahead

The MTD population is scheduled to expand again from 6 April 2028, when the qualifying income threshold is expected to reduce to more than £20,000.

This means that MTD is likely to become part of the normal tax compliance process for a substantial number of sole traders and landlords.

How we can help

If you are self-employed, receive rental income, or have both sources of income, we can review whether the MTD rules will apply to you and help you prepare for the transition.

We can also assist with selecting suitable accounting software, setting up digital bookkeeping records and managing the quarterly reporting requirements on your behalf.

If you need assistance, our team is here to help. You can get in touch with us to schedule a review or consultation.