Six months until MTD pulls in one million more taxpayers: What you need to do now
There are now six months until the scope for MTD for Income Tax opens up to sole traders and landlords earning over £30,000 ahead of 6 April 2027.
HMRC is urging people to begin to act now in light of the slow uptake of the first cohort who were eligible for MTD.
The first quarterly update saw 436,000 eligible individuals submit on the filing date, leaving just under half of all 864,000 expected filings unaccounted for.
In rebuttal to this, HMRC began signing up eligible individuals for MTD starting in September 2026.
What is MTD for Income Tax?
MTD is part of the Government’s wider effort to digitise the tax system and change how individuals manage their tax affairs.
It requires eligible sole traders and landlords to maintain digital records and use compatible software to report their income and expenses to HMRC.
The first phase began on 6 April 2026 for individuals with qualifying income above £50,000. From 6 April 2027, the threshold will fall to more than £30,000, bringing around one million more sole traders and landlords within scope.
It is important to note that for the 2026/2027 tax year, penalties for non-reporting were halted. For the next cohort, this will not be the case.
Rather than relying solely on an annual Self Assessment return, those affected must submit quarterly updates throughout the tax year, followed by a final declaration confirming their income and tax position.
The changes mean taxpayers will need to review their existing record-keeping processes and ensure they can report information digitally.
For those who currently rely on paper records or only organise their finances at the end of the tax year, this could require a significant adjustment.
What happens if I miss an MTD filing deadline?
From April 2027, those required to use MTD will face a points-based system for late submissions.
A penalty point will be issued for each missed quarterly update or tax return deadline. Once four points have accumulated, HMRC will charge a £200 penalty, with a further £200 penalty for each subsequent missed deadline while the taxpayer remains at the threshold.
This means that repeated missed deadlines could become costly, particularly for taxpayers who leave their bookkeeping until the end of the year or struggle to maintain regular records.
Although a single late quarterly update will not normally trigger an immediate financial penalty under the points system, it is still important to meet deadlines and establish reliable processes from the outset.
Separate late payment penalties may also apply if tax is not paid on time. Taxpayers should therefore consider both their reporting obligations and how they manage their tax payments.
How can landlords and sole traders prepare?
With six months to go until MTD becomes mandatory for sole traders and landlords with qualifying income over £30,000, now is the time to prepare.
Ways you can prepare include:
- Check whether you are affected: Taxpayers should review their qualifying income to establish whether they fall within the £30,000 threshold. This is based on gross qualifying income, rather than profit after expenses. Those with income from both self-employment and property should check how the rules apply to their circumstances.
- Choose compatible software: Those within scope will need software that meets HMRC’s MTD requirements. Reviewing available options early allows taxpayers to compare costs, check compatibility with existing systems and become familiar with the software before the deadline.
- Get digital records in order: MTD requires taxpayers to maintain digital records of their income and expenses. Moving away from paper-based systems, organising receipts and invoices, and regularly reconciling transactions can help make quarterly reporting more manageable.
- Speak to an accountant: Accountants can help individuals understand their responsibilities, select suitable software and prepare for the new reporting requirements. Early conversations will also give advisers more time to identify affected clients and support them through the transition.
Taking action now can help avoid last-minute disruption and make the transition to MTD more straightforward.
How can we help?
We understand that MTD can be confusing, particularly with the rules and deadlines changing over time. That is where we can help.
Our team can support you with the enrolment process, help you choose and use compliant software and make sure you stay on top of your filing deadlines.
For support with MTD, get in touch with our team.