Act Now: Prepare for Making Tax Digital for Income Tax from April 2026

What is Changing and Why It Matters

HMRC’s Making Tax Digital for Income Tax (MTD IT) regime comes into force on 6 April 2026 for sole traders and landlords whose annual income exceeds £50,000. This means that if your rental profits, self-employment income, or both total more than £50,000 in the tax year 2024-25, you must maintain digital records and submit quarterly income and expense updates to HMRC using recognised software.

This change aims to streamline tax administration by replacing some manual record-keeping and end-of-year reporting with continuous digital records and updates. Importantly, it does not add extra tax returns; you will continue filing one Self Assessment tax return annually, with the first MTD-compliant return due by 31 January 2028 for the 2026-27 tax year.

Who Will Be Affected?

• Single-unit landlords: If your rental income exceeds £50,000, you will need to comply. Many single-unit landlords may fall under this threshold, but it’s essential to check your income across all sources.
• HMO landlords and portfolio landlords: Those managing HMOs or multiple properties are more likely to exceed £50,000 income and will need to prepare for the new digital reporting requirements.
• Accidental landlords: If you rent out a property and your total income (rental plus self-employed income) crosses the threshold, you will also be subject to MTD IT.

Practical Implications

1. Digital Record-Keeping: You must maintain records digitally using HMRC-recognised software. Manual or spreadsheet records alone will no longer suffice.

2. Quarterly Income and Expense Updates: Alongside digital record-keeping, you will submit light-touch quarterly summaries of income and expenses to HMRC. This is not a full tax return but an update reflecting your financials during the year.

3. Annual Self Assessment Tax Return: You will continue filing your annual tax return by the usual deadline, but it will incorporate the data submitted through MTD.

4. Software Selection and Training: Selecting appropriate software is critical. It must be recognised by HMRC and capable of submitting quarterly updates. Familiarity with the system before April 2026 will ease the transition.

5. Compliance Risks: Failure to comply may result in fines or penalties. HMRC’s phased approach includes lower income thresholds in future years, so early adoption can mitigate ongoing risks.

Key Dates and Deadlines

• 6 April 2026: MTD IT mandatory start date for those exceeding £50,000 income.
• 31 January 2028: Deadline to file your first MTD-compliant Self Assessment tax return for 2026-27.

How to Prepare Now

• Review Your Income: Check your rental and self-employed income for the 2024-25 tax year to determine if you meet the £50,000 threshold.

• Choose Software Early: Research and select HMRC-recognised digital tax software that fits your business needs. Popular options include QuickBooks, Xero, and FreeAgent, among others.

• Engage Your Accountant or Tax Agent: Schedule a discussion to plan your MTD transition, including software set-up, workflow adjustments, and quarterly reporting schedules.

• Begin Maintaining Digital Records: Even before April 2026, start recording income and expenses digitally to build familiarity.

• Understand Exemptions: Only apply for a digital exemption if you genuinely cannot comply due to accessibility or other valid reasons.

Considerations for Different Landlord Profiles

• Portfolio Landlords: The quarterly updates may require dedicated administration time or additional team resources to avoid reporting delays.

• Small Landlords and Accidental Landlords: Even if your operation is smaller, compliance requirements are the same above the threshold.

• HMO Operators: Coordinating income and expenses across multiple tenants requires accurate and timely record-keeping to ensure quarterly updates are complete.

Strategic Benefits of Early Adoption

Adopting MTD early can improve financial visibility and cash flow management by encouraging regular review of income and expenses. It also reduces year-end surprises and potential penalties from missed deadlines.

How Rentals & Sales Can Help

Our team at Rentals & Sales offers tailored portfolio reviews, compliance audits, and tax software advisory services to help landlords transition to MTD smoothly. We can work with your accountants to set up workflows, select appropriate software, and train your property team on digital record-keeping.

Please contact us to schedule a consultation and ensure your properties remain compliant and optimised under the new tax rules.

Compliance Disclaimer: This article is for informational purposes only and does not constitute tax advice. Landlords should consult with a qualified tax professional or accountant regarding their specific circumstances.