Making Tax Digital for Income Tax is no longer a distant reform. From April 2026, next month, many sole traders and landlords will be required to comply with a new system of digital record keeping and quarterly reporting. The key question for many is simple. Are you affected, and are you ready?
The rules will initially apply to individuals with combined business and property income exceeding £50,000. The base year for meeting the £50,000 target is 2024-25. This threshold is based on gross income, not profit, which means more taxpayers will be brought into the regime than might be expected. A second phase is due to follow from April 2027, extending the requirements to those with income above £30,000.
If you fall within scope, the way you manage your tax affairs will change significantly. Annual Self-Assessment returns will be replaced by a requirement to maintain digital records and submit quarterly updates to HMRC. These updates will provide a summary of income and expenses, followed by an end of period statement and a final declaration.
For many, the biggest adjustment will be behavioural rather than technical. Businesses that are used to reviewing their figures once a year will need to move towards a more regular and disciplined approach. Record keeping will need to be timely, accurate, and supported by compatible software.
There are also practical considerations. You will need to choose suitable software, ensure that your records are complete and digital, and understand how the quarterly reporting process works. For landlords, this may involve separating property income streams more clearly. For sole traders, it may require changes to how expenses are tracked and categorised.
The benefits should not be overlooked. More frequent reporting can provide better visibility over business performance and tax liabilities. This can support improved decision making and reduce the risk of unexpected tax bills.
However, there are risks for those who delay. Late preparation may lead to errors, missed deadlines, and increased compliance costs. It may also place additional pressure on your adviser at a time when demand for support is likely to be high.
Now is a good time to review your position. Consider whether you will be within scope, assess your current record keeping processes, and take advice where needed. Early action will make the transition smoother and ensure that you remain compliant from the outset.
Making Tax Digital represents a significant shift in how tax is reported in the UK. With the first phase now imminent, preparation is no longer optional, it is essential.