HMRC has introduced a number of changes to online filing that will impact business and personal taxpayers over the next few years under the banner of Making Tax Digital (MTD). Some of these new developments are already live, others will come into effect from April 2026, which marks the start of HMRC’s new financial year.

The next set of changes impact income tax and specifically, sole traders and landlords. It’s really important that this group understands HMRCs changes to tax reporting in order to avoid penalties and potential criminal convictions.

Following is what you need to know about changes to reporting income tax and expenses for sole traders and landlords. Of course, if you need any help implementing these changes or understanding its impact on your or your business, please call the professional bookkeeping team at Hour Hands – we’re ready to help.

Income tax changes that will impact landlords and sole traders this year

Known as Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA for short), this is a new way of reporting income and expenses to HMRC from April 2026. Here are the key facts about this change.

Start Date: 6th April 2026

Who’s affected: Sole traders or landlords earning more than £50,000 of qualifying income.

What’s qualifying income?: Qualifying income is the total gross income you earn from self-employment and property before deducting any expenses. It does not include income from employment, dividends, pensions, or savings interest. Landlords: rental income means gross income received, not profit.

What needs to be done:

● Digital recording – Stop using paper records or spreadsheets and start keeping digital records using approved MTD complaint, HMRC approved software.
● Quarterly update – File quarterly summaries of your income and expenses using MTD-compliant software. The quarterly report replaces the current annual self-assessment form.
● Final Declaration – File annual summaries.

Key dates:
August 7, 2026: Submit your first quarterly update. These should be sent every three months after this date.
January 31, 2028: Submit the first full digital tax return for 2026/27 tax year.

Actions you need to take:
● Install approved MTD software suitable for ITSA reporting. Options include QuickBooks, Xero, FreeAgent amongst others – find out more via .gov website.

Please be aware that your business may already have the correct, compliant software. If you’re VAT-registered and submit your VAT returns online, then you very likely already operate HMRC- compliant software.

● Establish the process for capturing and reporting income data on a quarterly basis – you may choose to do this yourself, allocate the task to a member of your team or outsource the task to an experienced professional. Determine who is accountable now so there’s time for training, if needed.

Be aware: There may be late submission penalties if you don’t submit reports on time. This may be issued under a points-based system whereby each missed deadline results in a penalty point. Accumulating too many points can lead to a £200 fine and there may also be financial penalties.

Exemptions to the new MTD ITSA reporting:

1. Digital exclusion – if you’re unable to use digital technology due to age, disability, no access to broadband or other similar reasons. You’ll need to supply evidence.
2. Those landlords and sole traders with Income less than £49,999 for the 2026-2027 tax year only
3. General partnerships
4. Company directors filing tax returns
5. Pensioners
6. Some other special cases include religious exemptions or currently being insolvent.
   Visit the MTD ITSA page on .gov to apply for an exemption if appropriate.

Future MTD for Income Tax changes:

From April 2027: MTD for ITSA will apply if your income is over £30,000 GOV.UK
From April 2028: MTD for ITSA will apply if your income is over £20,000 (dependent on parliamentary approval)

Other HMRC Digital Changes

Digital communications as standard from April 2026

HMRC will start sending their standard communications such as tax code notifications via email. The email will ask the recipient to log in to their HMRC account to read messages.
Action needed: Update your contact information held by HMRC. Do this by checking your online account/s on the HMRC website.

Reminder: MTD for VAT an existing requirement

All VAT-registered businesses are required to make their VAT returns using MTD-compatible software. This software must maintain digital records of VAT transactions, submit VAT returns, comply with new penalty rules for late submissions and payments.

We highly recommend that you check your software and your internal systems to ensure that you are correctly reporting and paying VAT as required by HMRC.

Check if MTD for VAT impacts your business here

HMRC continues to introduce a number of changes as it continues its move to digital channels. It’s important to keep on top of these changes and plan for them now, to ensure that you and your business remain compliant. If you’re a business, we highly recommend nominating one person to manage this.

If you need assistance, you could consider outsourcing your bookkeeping. To ensure that you remain compliant, choose an experienced bookkeeper whom you can rely on to keep up-to-date with communications and requirements. The professional and knowledgeable Hour Hands team understands the regularly changing HMRC regulations and procedures and can help guide you through the process. Give us a call today and let’s get MTD ready together.