MTD for Income Tax: Six months until phase two pulls millions of taxpayers into scope

There are only six months left until Making Tax Digital (MTD) for Income Tax is extended to sole traders and landlords with qualifying income above £30,000, from 6 April 2027.

With the first group of taxpayers getting to grips with the new system, HMRC is encouraging those who will be affected next to start preparing sooner rather than later.

The early figures suggest there is still work to do. Of the 864,000 quarterly submissions expected from the first group of taxpayers, 436,000 were submitted by the deadline. That left just under half of the expected submissions outstanding.

To help improve uptake, HMRC began enrolling eligible taxpayers directly in September 2026.

What is MTD for Income Tax?

Making Tax Digital is part of the Government’s plan to bring the tax system into the digital age. For sole traders and landlords, it means making changes to how income and expenses are recorded and reported.

If you fall within the rules, you will need to keep digital records and use compatible software to send updates to HMRC.

The first phase of MTD began on 6 April 2026 and applies to individuals with qualifying income above £50,000. From 6 April 2027, the threshold drops to above £30,000, bringing around one million more sole traders and landlords into the system.

One important point to be aware of is that penalties for missed submissions were suspended for the first group during the 2026/27 tax year.

Rather than reporting everything through one annual return, taxpayers will need to send quarterly updates throughout the year before submitting a final declaration to confirm their overall income and tax position.

For anyone used to keeping paper records or sorting through receipts once a year, this will mean getting into some new habits. Making a start now should give you time to work out what needs to change before the rules take effect.

What if I miss a deadline?

From April 2027, taxpayers required to follow MTD will be covered by a points-based system for late submissions.

Each missed quarterly update or tax return deadline adds a point to your record. Once you reach four points, HMRC will charge a £200 penalty.

Every missed deadline after that will bring another £200 charge while you remain at the threshold.

In other words, falling behind on your bookkeeping could become an expensive habit.

Missing one quarterly deadline will not usually mean an immediate financial penalty under the points system. However, keeping on top of your records and submitting updates on time will help you avoid building up points.

It is also worth remembering that late payment penalties are separate. Even if your submissions are up to date, you could still face penalties if you do not pay your tax when it is due.

Getting organised now can help you manage both your reporting deadlines and your tax payments without unnecessary stress.

How should I be preparing for MTD?

With the April 2027 deadline approaching, there is still time to get things in order. The key is to understand what is expected of you and make any necessary changes before MTD becomes compulsory.

Here are four practical steps you can take now:

• Work out whether MTD applies to you: Check your qualifying income to see whether you are likely to fall within the £30,000 threshold. This is based on gross qualifying income, not the profit you make after expenses. If you earn money from both self-employment and property, you should check how the rules apply to your circumstances.
• Look into suitable software: You will need software that meets HMRC’s requirements. Taking the time to compare options now means you can find something that suits your needs, check whether it works with your existing systems and get comfortable using it before the deadline.
• Get into the habit of keeping digital records: Keeping track of income, expenses, receipts and invoices throughout the year will make quarterly reporting much easier. If you still rely on paperwork, now is a good time to consider moving to a digital system.
• Talk to your accountant: If you are unsure about your responsibilities, an accountant can help you understand the rules, choose appropriate software and prepare for the changes. Speaking to someone early gives you more time to ask questions and get everything ready.

A little preparation now could save you a lot of time and hassle later. You do not need to wait until the deadline is around the corner to start making changes.

How can we help?

We know that preparing for MTD can feel overwhelming, especially as requirements and deadlines evolve. Our team is here to help you understand the changes and what they mean for your business or property income.

We can guide you through enrolment, help you find and use compatible software and support you in keeping track of your reporting deadlines.

Get in touch with our team for support with preparing for MTD