Making Tax Digital for Income Tax – MTD is looming

Deadlines, Thresholds and What Sole Traders and Landlords Need to Know

23 Sept. 2025 – written by Steffen Kemmerzehl – Friendly Assist Accountancy – Blog

Many sole traders and landlords have heard about Making Tax Digital for Income Tax (MTD ITSA), but are still unsure whether it applies to them, when they need to comply, and what they need to do next.

If you’re a landlord using spreadsheets, a sole trader managing invoices manually, or a tradesperson sorting receipts every January, Making Tax Digital could affect you sooner than you think.

These are all common situations, but HMRC’s digital reporting requirements are changing how income and expenses must be recorded and submitted.

Making Tax Digital for Income Tax is one of the biggest changes to Self Assessment in recent years. Understanding the rules now can help you avoid stress, last-minute software changes and potential penalties later.

What is MTD for Income Tax?

MTD for Income Tax applies to qualifying sole traders, landlords and some individuals with combined property and self-employment income.

If you fall within the rules, you will generally need to:

• Keep digital records of income and expenses
• Use compatible software to maintain those records
• Submit quarterly updates to HMRC
• Complete a final declaration after the end of the tax year

It replaces part of the traditional Self Assessment process for affected taxpayers.

If you currently complete an annual tax return, our Self Assessment Tax Return Help UK page explains how the existing system works and how future reporting requirements may affect you.

What Income Counts Towards the Threshold?

One of the most misunderstood areas of MTD is how HMRC determines whether you meet the income threshold.

The threshold is generally based on gross income rather than profit.

Qualifying income may include:

• Self-employment income
• UK rental income
• Overseas rental income
• Income from multiple self-employed businesses
• Combined trading and property income

Many people assume they are below the threshold because each income source is relatively modest. However, HMRC may combine qualifying income when determining whether MTD applies.

If you receive overseas income or own foreign property, our International & Expat Accounting Services UK page explains some of the additional tax considerations involved.

Gross qualifying income	MTD start date
More than £50,000	6 April 2026
£30,001 to £50,000	6 April 2027
£20,001 to £30,000	6 April 2028

Do Landlords Need to Register for Making Tax Digital?

Many landlords assume Making Tax Digital only affects businesses. In reality, rental income is one of the main categories of income that can bring someone within the new rules.

If your gross rental income exceeds the relevant threshold, you may be required to keep digital records and submit quarterly updates to HMRC.

This applies whether you own a single buy-to-let property or a larger property portfolio.

It is important to remember that HMRC looks at gross qualifying income rather than profit. In some cases, rental income may be combined with self-employment income when determining whether Making Tax Digital applies.

For example, a landlord receiving £28,000 in rental income and £25,000 from self-employment may have combined qualifying income of £53,000. This could bring them within Making Tax Digital from April 2026.

Common landlord issues include:

• Keeping incomplete records of rental income and expenses

• Mixing personal and property transactions

• Failing to retain supporting documentation

• Uncertainty over what expenses can be claimed

• Using spreadsheets that may not meet digital reporting requirements without additional software

Preparing early gives landlords time to understand the rules, improve record keeping and choose suitable software before the deadlines arrive.

If you are a landlord and are unsure whether Making Tax Digital applies to you, Friendly Assist Accountancy can help you understand your obligations and prepare for the changes with confidence.

Common MTD Myths

Myth 1: MTD means paying tax quarterly

Not necessarily.

Quarterly updates are reporting obligations. They do not automatically mean quarterly tax payments.

Myth 2: I use spreadsheets so I’m exempt

No.

Spreadsheets may still be used in some circumstances, but many users will require bridging software or another compatible solution.

Myth 3: MTD only affects full-time businesses

Incorrect.

Landlords, side hustles and part-time self-employed individuals may also fall within the rules if their income exceeds the relevant thresholds.

Myth 4: I can wait until HMRC contacts me

Many people will receive communications from HMRC, but leaving preparation until the last minute can create unnecessary stress and software issues.

Real Examples

Example 1

Sarah is a self-employed consultant with gross income of £55,000.

Because her qualifying income exceeds £50,000, she is likely to fall within MTD from April 2026.

Example 2

James receives rental income of £35,000 per year.

He is below the first threshold but may fall within MTD from April 2027 when the £30,000 threshold applies.

Example 3

Emma has self-employment income of £25,000 and rental income of £28,000.

Neither source exceeds £50,000 individually, but together they total £53,000. This combined income may bring her within MTD from April 2026.

Key MTD Deadlines

31 January 2026

Deadline for filing the 2024/25 Self Assessment tax return under the existing system.

February 2026

HMRC is expected to begin contacting individuals whose previous returns indicate they may fall within the first phase of MTD.

6 April 2026

MTD for Income Tax begins for those with qualifying income above £50,000.

7 August 2026

First quarterly update deadline for many taxpayers entering MTD from April 2026.

6 April 2027

Threshold reduces to £30,000.

6 April 2028

Threshold reduces to £20,000.

Software and Record Keeping

To comply with MTD, you will generally need software capable of maintaining digital records and submitting information to HMRC.

Popular options include:

• Xero
• QuickBooks
• FreeAgent
• Sage
• Various bridging software solutions

Good software helps, but compliance also depends on maintaining accurate records and good bookkeeping habits throughout the year.

For practical guidance, read our article AI bookkeeping is only as strong as the habits behind it.

Risks of Leaving Preparation Too Late

Some of the most common problems we see include:

• Poor bookkeeping habits
• Missing records
• Incorrect software setup
• Mixing personal and business transactions
• Uncertainty over qualifying income
• Last-minute attempts to become compliant

These issues often create unnecessary stress and increase the risk of HMRC enquiries or penalties.

If you have already received penalties or missed deadlines, our HMRC Penalty Help and Late Tax Return Support page may help.

Benefits of Preparing Early

Preparing before the rules apply can provide several benefits:

• Better visibility over your finances
• Less pressure around tax deadlines
• Easier quarterly reporting
• Reduced risk of errors
• Improved financial records

Accurate records can also be useful when applying for finance or mortgages. You may find our article Getting a Mortgage: How an Accountant Can Help helpful.

How Friendly Assist Accountancy Can Help

At Friendly Assist Accountancy, we help sole traders, landlords, freelancers and international clients prepare for Making Tax Digital with practical, straightforward advice.

We can help you:

• Determine whether MTD applies to you
• Calculate qualifying income
• Choose suitable software
• Move from spreadsheets to digital records
• Prepare and submit quarterly updates
• Complete year-end declarations
• Resolve HMRC compliance concerns

Whether you are already affected or simply planning ahead, taking action early can make the transition much smoother.

Final Thoughts

MTD for Income Tax is no longer a distant HMRC project. The first phase begins in April 2026 and the scope will expand significantly in the years that follow.

The earlier you prepare, the easier compliance is likely to be.

If you are unsure whether MTD applies to you, need help choosing software, or want support with your tax obligations, Friendly Assist Accountancy is here to help.