Making Tax Digital is here: What’s next? Tax planning under MTD

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is now officially in effect for landlords and sole traders with gross annual earnings above £50,000. If you fall into this category and haven’t yet signed up, now is the time to act.

Registering early ensures you’re well prepared for your first quarterly update and reduces the risk of administrative issues or missed deadlines as the new reporting structure takes shape.

To ensure you have everything you need to get started, we’re here to walk you through your next steps.

Registering for MTD: 

HMRC’s online sign‑up service will ask you to provide details about your active sole trader and/or property income.

When you sign up for MTD, you’ll use the same Government Gateway user ID and password used for your Self-Assessment account.

You’ll need to confirm the date your business began trading, or the date you first started receiving property income, if either of these happened within the last two tax years. HMRC will also ask you to specify the tax year from which you plan to start using MTD for Income Tax.

If you’re a sole trader, you’ll be asked for additional business‑related details, including:

For anyone with more than one self‑employment activity or multiple property businesses, it’s important to check that all income sources appear within the system and manually add any that do not.
 

Using Software: 

From 6 April 2026, eligible landlords and sole traders are now required to use HMRC-approved software to keep digital records and report income. Choosing your software ahead of signing up helps ensure a smooth transition and means your digital record‑keeping practices can begin immediately. 

Using MTD software means your self‑employment and property income will be recorded digitally, submitted quarterly, and summarised in real time. Your software will also be used to prepare and submit your final declaration by the usual 31 January deadline.  

Other types of income, such as dividends, savings interest, or pension income, do not need to be digitally recorded, but they must be reported within your software when completing the final declaration. 

This shift is designed to provide more accurate information throughout the year, reduce errors, and offer better insight into your expected tax liability. 

A new approach to penalties: 

Current late-payment penalties will still apply to previous tax years, for example, if you begin using MTD from April 2026, your 2025–26 tax return (due 31 January 2027) remains subject to the existing penalty rules. 

Further missed deadlines will each incur an additional £200 penalty. Importantly, even if you operate multiple businesses, you can only receive one penalty point per deadline. VAT penalty points remain separate from MTD Income Tax points. 

Quarterly update deadlines will be: 

Late payment penalties are also changing to a model that considers how long payment is overdue. Interest will accrue from the moment tax becomes overdue, so paying promptly remains essential. 

Looking ahead: 

Making Tax Digital marks a major milestone in how sole traders and landlords manage their financial records. While it may feel like a significant shift, the system is designed to give you clearer visibility of your finances throughout the year, help you anticipate how much tax you’ll owe, and make the reporting process more efficient over time. Getting set up now is the best way to make the transition smooth and stress‑free.