Making Tax Digital for Income Tax has been talked about for years, which is exactly why it’s easy to keep filing it under “not yet my problem.”
For a growing number of sole traders and landlords, that’s already true. MTD for Income Tax Self Assessment started in April this year for higher earners, and the first quarterly reporting deadline has already passed. If you’re not affected yet, you likely will be soon, and the businesses that cope best with the change are the ones who set things up before it’s mandatory, not the week it becomes unavoidable.
Here’s what’s actually changing, who it affects and when, and what to do about it now.
What MTD for Income Tax actually changes
At the moment, most sole traders and landlords file one Self Assessment return a year, based on records kept however suits them, spreadsheet, shoebox of receipts, or proper software.
Under MTD for Income Tax, that changes in two ways. First, you need to keep digital records of your business or property income and expenses throughout the year, rather than pulling everything together once annually. Second, instead of a single yearly return, you submit quarterly updates to HMRC, followed by a final declaration at the end of the tax year.
It’s not a change to how much tax you owe. It’s a change to how and how often you report it, and that shift in rhythm is bigger in practice than it sounds on paper.
The thresholds, and where you stand
MTD for Income Tax applies to sole traders and landlords, based on gross income from self-employment and property, not profit. It’s being phased in over three stages:
- Over £50,000 (based on 2024/25 income): mandatory since April 2026. This has already started.
- Over £30,000 (based on 2025/26 income): mandatory from April 2027
- Over £20,000 (based on 2026/27 income): mandatory from April 2028
If your gross income is over £50,000, MTD already applies to you, and the first quarterly update deadline has already passed. If that’s you and you haven’t started yet, the priority now is getting set up and catching up, not waiting for the next one.
If you’re under £50,000, you have more time, but the 2027 and 2028 thresholds will bring in a lot more sole traders and landlords, and it’s worth using that time rather than waiting for the deadline to get close.
Why this catches people out
The businesses that struggle with MTD generally aren’t the ones with complicated finances. They’re the ones who assumed they had more time, and ended up setting up digital record-keeping in a rush, either right before their deadline or, for those already over £50,000, after it.
If you’re already over £50,000 and haven’t started, that’s a fixable position, but it’s worth acting on now rather than waiting for the next quarterly deadline to arrive too. Quarterly reporting also changes the rhythm of running a business in a way that’s easy to underestimate. Instead of one intense period of getting records together each year, it becomes something that needs attention four times a year, on a schedule set by HMRC rather than whenever’s convenient.
What to set up now, not later
The good news is that none of this needs to be complicated if it’s done ahead of time rather than reactively.
Move to digital record-keeping now, regardless of your current threshold status. Software like Xero, set up properly with bank feeds and receipt capture, does most of the ongoing work automatically. Waiting until MTD applies to you means learning a new system at the same time as meeting a new deadline, which is a harder way to do both.
Check your actual income against current thresholds, rather than relying on general awareness that “it’s coming.” A quick, specific check tells you whether this is a next-tax-year problem or a genuinely distant one.
Build quarterly reporting into your existing rhythm early, even before it’s mandatory. Reviewing income and expenses every three months, rather than once a year, tends to improve financial decision-making anyway, independent of the compliance requirement.
The upside, once it’s set up
It’s easy to frame MTD purely as an added burden, but for many sole traders and landlords, proper digital record-keeping ends up being useful well beyond compliance. Knowing your numbers every quarter, rather than finding out once a year in arrears, makes it easier to plan for tax bills, spot problems early, and make decisions with current information rather than numbers that are months out of date.
The businesses that resent MTD most tend to be the ones who set it up at the last minute, under pressure, purely to meet a deadline. The ones who set it up early tend to find it’s not the burden they expected.
Final Thought
A quote from our Principal, Sunil Aggarwal:
“MTD isn’t really about HMRC wanting more paperwork. It’s about moving businesses toward knowing their numbers as they happen, not months after the fact.
The clients who’ve already made that shift aren’t dreading their MTD start date. They’re already doing most of what it requires, because it turned out to be useful on its own terms.”
If you’re not sure whether MTD for Income Tax applies to you yet, or you’d rather get set up properly before it does, that’s a conversation worth having now rather than later.
Check if MTD affects you: book a review with DRS and we’ll tell you exactly where you stand and what to do about it.
- Email: info@drs-tax.com
- Telephone: 020 8059 1891
- Or submit an enquiry via our Contact Us page