Making Tax Digital for Income Tax: What Every Sole Trader and Landlord Needs to Know

The biggest change to Self Assessment in over 30 years has arrived.

If you're a sole trader or landlord, the way you report your income to HMRC is changing.

Gone are the days of keeping a shoebox full of receipts and submitting one tax return each January. Under Making Tax Digital for Income Tax (MTD for IT), many taxpayers must now keep digital records and send updates to HMRC throughout the year.

Although the changes may seem daunting, they don't have to be.

In this guide, we'll explain exactly:

• What Making Tax Digital for Income Tax is

• Who it applies to

• When you need to comply

• What you'll need to do

• How you can prepare now to avoid unnecessary stress later.

What is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) is HMRC's programme to modernise the UK tax system.

Many businesses are already familiar with Making Tax Digital for VAT, which requires VAT returns to be submitted using compatible accounting software.

The next phase is Making Tax Digital for Income Tax, often referred to as MTD for IT.

Instead of completing just one annual Self Assessment tax return, affected taxpayers must:

• Keep digital records of income and expenses.

• Use HMRC-recognised software.

• Submit quarterly updates to HMRC.

• Complete a Final Declaration at the end of the tax year.

The aim is to reduce errors, improve accuracy and give taxpayers a more up-to-date view of their tax position throughout the year.

Who Needs to Follow the New Rules?

The rules do not apply to everyone immediately.

HMRC is introducing Making Tax Digital in stages.

From 6 April 2026

You must comply if your combined gross income from:

• Self-employment

• UK property income

is more than £50,000 per year.

Important: HMRC looks at your gross income (turnover) before expenses, not your profit. This catches many people out.

Example 1

Sarah is a self-employed consultant.

Annual turnover: £65,000

Business expenses: £30,000

Profit: £35,000

Although her profit is only £35,000, her turnover exceeds £50,000, so she falls within Making Tax Digital.

Example 2

James earns:

• £28,000 from self-employment

• £26,000 from rental property

Combined gross income = £54,000

Even though neither source exceeds £50,000 individually, together they do, meaning James must comply with MTD for Income Tax.

Future Rollout Dates

HMRC is widening the scope over the next two years:

Start DateCombined Gross IncomeApril 2026Over £50,000April 2027Over £30,000April 2028Over £20,000

If your income is below today's threshold, it is worth preparing now, as many more taxpayers will be brought into the system over the coming years.

Who Doesn't Need to Comply?

At present, the following are generally outside the scope:

• Limited companies

• Corporation Tax returns

• VAT-only registered businesses (unless also affected as sole traders or landlords)

• Most partnerships (for now)

However, HMRC is expected to extend Making Tax Digital further in the future.

What Will You Need to Do?

If you're within Making Tax Digital, you'll need to:

1. Keep Digital Records

Paper records alone will no longer be enough.

You'll need compatible accounting software that records:

• Sales

• Income

• Expenses

• Business transactions

Examples include Xero, QuickBooks, FreeAgent and other HMRC-recognised software.

2. Submit Quarterly Updates

Instead of waiting until January, you'll send HMRC updates every three months.

These updates summarise your business income and expenses.

Think of them as progress reports rather than final tax calculations.

3. Complete a Final Declaration

At the end of the tax year, you'll submit a Final Declaration.

This replaces the traditional Self Assessment return and confirms your total income, tax reliefs and tax liability for the year.

What Are the Benefits?

Although many business owners see this as more administration, there are some advantages.

By keeping your records up to date, you'll have:

• Better visibility of your profits.

• Fewer last-minute surprises.

• More accurate tax estimates.

• Better cash-flow planning.

• Cleaner bookkeeping throughout the year.

For many businesses already using cloud accounting software, the transition will be relatively straightforward.

What Happens if You Don't Prepare?

Leaving things until the last minute could mean:

• Missing HMRC deadlines.

• Inaccurate bookkeeping.

• More accountant fees to correct records.

• Late filing penalties.

• Increased stress throughout the year.

Starting early makes the process much easier.

Five Steps You Can Take Today

If you think Making Tax Digital may affect you, here's what we recommend:

Step 1 – Check Your Income

Calculate your combined gross income from:

• Self-employment

• UK rental properties

Remember, it's turnover—not profit—that matters.

Step 2 – Review Your Bookkeeping

Are you still relying on spreadsheets or paper records?

If so, now is the ideal time to move to digital bookkeeping.

Step 3 – Choose the Right Software

Select HMRC-compatible software that suits your business and can support MTD for Income Tax.

Step 4 – Keep Records Regularly

Updating your bookkeeping monthly—or even weekly—will make quarterly submissions far easier.

Step 5 – Speak to Your Accountant

Every business is different.

A quick review now could save significant time, money and headaches once the rules apply to you.

How Crypto Tax Accountants Can Help

Making Tax Digital doesn't need to be complicated.

At Crypto Tax Accountants, we help sole traders, landlords and growing businesses:

• Determine whether MTD applies to them.

• Set up cloud accounting software.

• Keep compliant digital records.

• Submit quarterly updates.

• Complete their Final Declaration.

• Stay fully compliant with HMRC.

Whether you're already affected or simply preparing for the future, we're here to make the transition as smooth as possible.

Book a Free Consultation

Not sure whether Making Tax Digital applies to you?

Contact Crypto Tax Accountants today for a free, no-obligation consultation. We'll review your circumstances, explain exactly what you need to do and help you get set up before the deadlines arrive.

Disclaimer

This article is intended as general guidance only and reflects our understanding of HMRC's Making Tax Digital for Income Tax rules at the time of writing. It should not be relied upon as personal tax advice. If you're unsure how the rules apply to your circumstances, please seek professional advice.