HMRC has started signing people up for Making Tax Digital

              

 

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

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If you’re a sole trader or landlord who should already be using Making Tax Digital but haven’t signed up, HMRC may now do it for you. Automatic enrolment started in September for people whose 2024–25 returns show qualifying income above £50,000, potentially leaving thousands of small business owners having to catch up with digital records and quarterly updates. And this isn’t simply a problem for higher-earning sole traders: the threshold falls to £30,000 next April and £20,000 in 2028, bringing millions more people towards a tax system built around continuous digital record-keeping rather than the traditional annual scramble to complete a return.

HMRC IS NOW SIGNING PEOPLE UP

Making Tax Digital for Income Tax became compulsory from 6 April 2026 for sole traders and landlords whose combined qualifying income from self-employment and property exceeded £50,000 in 2024–25. HMRC says that from September it is starting to enrol people who should be using the system but haven’t signed themselves up.

HMRC is doing this using information it already holds, which creates another potential problem. If your circumstances have changed since your last return, you may need to update the information HMRC is using, particularly if an income source has started or stopped.

WHAT DO YOU HAVE TO DO?

MTD requires compatible software to create and maintain digital records of self-employment and property income and expenses. Every three months the software uses those records to send HMRC summaries of income and expenses for each relevant business or property income source.

Those quarterly updates aren’t tax returns, and your annual tax return hasn’t disappeared. You still submit a return and pay the tax due by 31 January following the end of the tax year, but the return itself becomes part of the digital MTD process.

YOU MAY ALREADY BE BEHIND

The first quarterly deadline for 2026–27 was 7 August and the second is 7 November. If you’ve only just been automatically enrolled, you may therefore already have information that needs to be brought up to date.

There is some breathing space because HMRC won’t apply penalty points for late quarterly updates during 2026–27. You still need to keep the required digital records and submit the outstanding updates before you can submit your tax return.

YOU NEED SOFTWARE

HMRC doesn’t provide the accounting software itself, so businesses need compatible software capable of meeting the MTD requirements. Existing accounting packages may support MTD, but HMRC advises users to check with their software provider rather than assuming their existing package is suitable.

For a microbusiness that previously kept relatively simple records and completed one annual return, this represents a significant change in routine. Digital records have to be maintained throughout the year and information submitted quarterly, creating more frequent administrative deadlines.

£30,000 IS NEXT

This isn’t just an issue for people earning above £50,000. From 6 April 2027, MTD becomes compulsory for sole traders and landlords whose qualifying income exceeded £30,000 in the 2025–26 tax year.

Qualifying income means gross income from self-employment and property before expenses. Someone receiving £18,000 from self-employment and £14,000 in gross property income therefore has qualifying income of £32,000 and would fall into the April 2027 phase.

THEN IT FALLS TO £20,000

There’s another important stage that small businesses need to know about. From April 2028, the threshold falls again to more than £20,000 of qualifying income, based on income in the 2026–27 tax year.

That third phase is now confirmed government policy. It means MTD will eventually reach much smaller sole traders, landlords, freelancers and people combining different sources of qualifying income.

ACCOUNTANTS WILL GET BUSIER

The £30,000 threshold will bring another large group into MTD next April, followed by the £20,000 group a year later. Small businesses relying on accountants or bookkeepers shouldn’t assume they’ll be able to leave preparations until the last minute, because advisers will also be dealing with increasing numbers of clients entering the system.

If you need professional help, check the qualifications and regulatory status of the person you’re approaching. Professional bodies such as ACCA provide directories that allow businesses to search for accountancy firms.

CHECK NOW, NOT IN JANUARY

If you should already be using MTD, check whether HMRC has contacted you and make sure the information it holds about your self-employment and property income is correct. You should also make sure you have compatible software, bring your digital records up to date and submit any outstanding quarterly information.

Making Tax Digital isn’t going away and its reach is expanding quickly. It started above £50,000 this year, falls to £30,000 next April and then to £20,000 in April 2028, so what currently affects one group of sole traders and landlords will soon become part of everyday tax administration for millions of much smaller businesses.

This is an abbreviated article by Liz Barclay – read the full article at Business111.com/news

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