As HM Revenue and Customs (HMRC) continues its drive to modernise the UK tax system through digital transformation, Making Tax Digital for Income Tax (MTDfIT) comes into effect in April 2026. These mandatory changes may catch landlords and sole traders by surprise.
MTDfIT has been a long time coming
HMRC first launched its Making Tax Digital programme in 2015-16 with the intention of having a new platform live by 2020. Despite challenges and delays, MTDfIT will finally take effect from April 2026, applying to income tax for sole traders and landlords who meet certain conditions. Its goals are twofold: to reduce the amount of tax lost for HMRC and help taxpayers better understand their position in real time.
Who will be impacted?
It is estimated that nearly three million taxpayers will need to comply with MTDfIT by April 2028. From 6th April 2026, sole traders and landlords with total gross turnover and rental income exceeding £50,000 per annum will fall within the regime. This threshold will be assessed using figures reported on taxpayers’ 2024-25 UK tax returns, which were due to be submitted to HMRC by 31 January 2026. From 6th April 2027, the threshold will reduce to £30,000, and from 6th April 2028 it will reduce further to £20,000 – bringing millions more within its scope.
Reporting requirements
Impacted taxpayers will be required to submit returns to HMRC quarterly. The quarters ending 5th July, October, December and April must be submitted less than five weeks later – by 7th August, November, February and May respectively. At the end of the year, taxpayers must submit a final declaration, including all other income and gains. This replaces the Self-Assessment tax return and is due by 31st January each year. Failure to meet reporting requirements will trigger penalties under HMRC’s points-based system.
Tax payment deadlines
While MTDfIT will require five returns per year, replacing the single return which landlords and sole traders have likely been filing historically, the tax payment timings will not change. Tax payment deadlines will continue to be due by 31st January and 31st July (if applicable) each year.
Can taxpayers opt out of the regime?
Once a taxpayer enters the MTDfIT regime, it will take three consecutive tax years of falling under the threshold before they are eligible to opt out. Taxpayers who do
meet the conditions must continue to file quarterly returns throughout the three-year period, even if they
are nil returns.
The impact on landlords and sole traders
Landlords have faced increasing pressure for several years now, with tax breaks being reduced or removed and borrowing becoming both more difficult as well as more expensive. Most recently The Renters’ Rights Act delivered yet more complexity and uncertainty for landlords. It is unsurprising that many estate agents report that landlords are taking time to review their options and considering carefully whether investing in property remains the ‘no brainer’ it once was.
Landlords are considering whether investing in property remains the ‘no brainer’ it once was.
For sole traders, this may be an opportunity to consider whether now is the time to incorporate their business. While the potential to reduce the administrative burden and accounting costs is attractive, care should be taken to consider the overall picture and implications of undertaking such a restructure.
Get prepared
For taxpayers caught by these new rules, now is the time to act, as the first quarterly return for the period 6th April 2026 to 5th July 2026 is due for submission by 7th August 2026.
Accurate digital record keeping will be more important than ever. Taxpayers currently using paper records will need to switch to digital systems. Those wishing to file their own quarterly returns will need to acquire third-party software. Alternatively, you can appoint an agent to prepare and submit the returns on your behalf using specialist HMRC-accredited software.
In summary
MTDfIT is undoubtedly a big change in the tax system: time will tell whether it delivers the intended benefit to digitalise the tax system and improve efficiencies, but it is important to act now if you think you could be affected.
If you are a landlord affected by this change and are considering selling some or all of your property portfolio, please speak to your JM Finn investment manager, who can discuss other potentially suitable investments with you. Please note that income from investment portfolios is not affected by the changes resulting from MTDfIT.
Rachael Adcock
Head of Private Wealth & Family Office UK, TMF Group
About TMF Group
TMF Group is a leading provider of administrative services, helping clients invest and operate safely around the world. With offices across 87 jurisdictions, it serves corporates, financial institutions, asset managers, private clients and family offices, providing accounting, tax, payroll, fund administration, compliance and entity management services. The Private Wealth team is set up to provide support through the transition to MTDfIT and all ongoing reporting requirements.
All views expressed are those of the author and are presented for information purposes only. The information provided in this article is of a general nature and is not a substitute for specific advice about your own circumstances. You are recommended to obtain specific advice from a qualified professional before you take any action or refrain from any action.
