The UK’s tax system is set for its biggest shake-up in decades as Making Tax Digital (MTD) for Income Tax becomes mandatory from 6 April 2026. The scheme, designed to modernise how individuals and landlords report their earnings, will gradually extend over the following two years.
Who Will Be Affected First?
From April 2026, MTD rules will apply to anyone who is self-employed or a landlord with annual business or property income over £50,000. They will be required to:
- Keep digital records of income and expenses.
- Use HMRC-approved software to file returns.
- Submit quarterly updates instead of one annual tax return.
The rules expand in later years:
- April 2027 – Threshold lowered to £30,000.
- April 2028 – Threshold reduced again to £20,000.
Why the Change?
HMRC says MTD will make it easier for taxpayers to manage their finances, reduce mistakes, and improve compliance. It is part of the government’s wider move towards digitalisation in public services.
For businesses and landlords, however, the change means new costs for accounting software and training, with industry experts warning that some taxpayers could face bills of £500 or more each year.
Tougher Penalties Coming
Alongside MTD, new late filing penalties will be introduced from 2026 for those who fall behind:
- 3% surcharge if tax is 15 days late.
- A further 3% if 30 days late.
- 10% per annum for unpaid tax after 31 days.
This marks a stricter approach compared to the current system, which has been criticised as too lenient.
Impact on the Trade
Nearly 800,000 self-employed workers and landlords are expected to join the system in 2026, followed by almost one million more in 2027. Taxi drivers, private hire operators, and small business owners will be among those most affected, given the need for regular digital reporting.
Accountants are advising businesses to prepare early by adopting compatible software and familiarising themselves with quarterly submissions before penalties begin.
Key Timeline for MTD
| Date | Threshold | Requirement |
|---|---|---|
| 6 April 2026 | £50,000+ income | Digital records & quarterly updates |
| 6 April 2027 | £30,000+ income | Requirement extended |
| 6 April 2028 | £20,000+ income | Full rollout complete |
In Summary
From April 2026, Making Tax Digital will transform the way self-employed people and landlords handle their taxes. With quarterly submissions, mandatory software, and tougher fines, the message is clear: prepare now or risk penalties later.
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