Making Tax Digital for Income Tax: What Landlords and Sole Traders Must Do Before April 2026

The UK tax system is entering a new era of digital compliance. From 6 April 2026, many landlords and sole traders will be required to keep digital records and send quarterly updates to HMRC under Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).

While this may sound straightforward, the reality is more complex — particularly for those with multiple income sources, joint property ownership, or traditional bookkeeping systems. With less than 18 months until the rules apply to a wide swathe of individuals, the time to prepare is now.

This article sets out who MTD for ITSA will affect, what the new rules require, and what you should be doing in the current tax year to be ready.

What Is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) is the government’s long-term programme to modernise the UK tax system through the use of digital records and real-time reporting. It began with VAT and is now extending to Income Tax Self Assessment (ITSA).

MTD for ITSA requires affected taxpayers to:

• Keep digital records of income and expenses
• Use compatible software to record transactions
• Submit quarterly updates to HMRC
• Complete an End of Period Statement (EOPS) and Final Declaration annually

This is a major shift away from the current system, which only requires one tax return per year.

Who Will Be Affected from April 2026?

MTD for ITSA will apply to individuals with:

• Gross income over £50,000 per year from:
• • Self-employment
  • Property income

This threshold applies per person, not per business or property. HMRC assesses your total gross income, not net profit. That means even if your expenses are high, you could still be required to comply if your gross receipts exceed £50,000.

From April 2027, the rules will extend to individuals with income over £30,000.

Examples:

• A landlord earning £52,000 in rental income will be within scope, even if their profit is only £20,000.
• A sole trader earning £40,000 and also receiving £15,000 in rental income will have a total of £55,000 and must comply.

If your gross income is £50,000 or less, you remain in the normal Self Assessment system until the next rollout stage.

Who Is Exempt?

You will be exempt from MTD for ITSA if:

• Your gross income from self-employment and property is £50,000 or less
• You are non-resident for tax purposes
• You are a trustee, personal representative, or Lloyd’s underwriter
• You cannot use digital tools due to age, disability, or remoteness (you must apply to HMRC for a digital exclusion exemption)

What Will You Need to Do?

If you fall within the MTD for ITSA rules from April 2026, your new obligations will include:

1. Keep Digital Records

You must use software or apps to record all income and allowable expenses digitally. Paper-based or spreadsheet-only records will no longer be compliant unless they are linked to bridging software.

This includes:

• Invoices
• Receipts
• Bank payments
• Rental income entries

The digital records must capture dates, amounts, and descriptions of each transaction.

2. Send Quarterly Updates

You must submit a summary of income and expenses to HMRC every three months for each business or property income source.

The update deadlines are fixed:

Each update is cumulative — meaning it reflects income and expenses to date.

3. Submit End of Period Statement (EOPS)

At the end of the tax year, you’ll confirm your final income and claim any adjustments (e.g. capital allowances, accounting changes) through an End of Period Statement. There is one EOPS per income source.

4. Submit Final Declaration

Once all income (including non-business income like dividends or pensions) is confirmed, you must make a Final Declaration — effectively replacing the Self Assessment tax return.

The deadline for this is expected to remain 31 January following the end of the tax year.

What Kind of Software Will You Need?

You must use HMRC-approved MTD-compatible software to:

• Keep records
• Make quarterly submissions
• Submit the EOPS and Final Declaration

Common solutions already used for VAT (such as QuickBooks, Xero, FreeAgent, and Sage) are expected to offer full MTD for ITSA functionality.

For landlords, some providers are launching property-specific software designed to manage multiple properties, tenants, and rental income reporting.

Planning Tips for 2025/26

Even though MTD for ITSA begins in 2026, what you do in the 2025/26 tax year can make a big difference to your readiness.

1. Check Your Income Threshold

Review your gross income for 2024/25 to see if you’re likely to cross the £50,000 threshold. Remember to add:

• All self-employed income
• Total rental receipts (not just profit)
• Income from jointly owned property (your share)

If you’re near the threshold, consider whether income may fluctuate in 2025/26. The threshold is tested annually — if you exceed it in two consecutive years, you’ll be required to comply.

2. Move to Digital Records Now

Even if MTD doesn’t apply to you yet, shifting to digital record keeping in 2025/26 allows you to:

• Build familiarity with accounting software
• Catch and correct record-keeping issues early
• Save time in future compliance years

It also helps your accountant work more efficiently, which may reduce costs and delays.

3. Separate Personal and Business Banking

If you haven’t already, set up a dedicated business or rental account. This will make digital tracking of transactions much easier and cleaner.

Many software tools can connect directly to your bank feed — but only if the account is used solely for business.

4. Start Quarterly Reporting Voluntarily

Some software providers and accountants now offer voluntary quarterly summaries to simulate MTD. Practising now could help reduce the compliance burden later.

Challenges for Landlords and Joint Ownership

MTD creates additional complexity for landlords, especially those with:

• Jointly owned property: Each owner must submit their own MTD reports, even for shared income
• Multiple properties: All must be reported together as one property business
• Mixed-use portfolios: Commercial and residential properties have different reporting considerations

Those using letting agents may find that income and expense data are not always provided in a format compatible with MTD software — requiring additional reconciliation.

Summary

Making Tax Digital for Income Tax is the biggest change to self-assessment in a generation. From April 2026, it will introduce quarterly reporting and mandatory software for hundreds of thousands of landlords and sole traders.

If you fall within the scope, it is essential to start planning now:

• Confirm your income threshold
• Move to digital record keeping during 2025/26
• Prepare for quarterly reporting
• Upgrade your accounting systems

Delaying preparation risks non-compliance, rushed decisions, and higher professional fees. Early adoption gives you more control, better insight, and a smoother transition.