Thousands of sole traders and landlords earning over £30,000 annually have just six months to prepare for the mandatory use of Making Tax Digital (MTD) for Income Tax, HMRC has warned. The new rules take effect from April 6, 2027, requiring digital record-keeping and quarterly updates to HMRC using compatible software.
Quarterly reporting remains, but annual returns stay
Despite the introduction of quarterly updates, annual tax returns and payment deadlines will remain unchanged. HMRC describes this as the biggest change to Income Tax since Self Assessment was introduced over 30 years ago.
In a warning posted on X, the tax authority said: "There are just six months to go until sole traders and landlords with turnover above £30,000 must start using Making Tax Digital." The post added: "Unsure what this means for you? We're here to bust the most common myths about Making Tax Digital for Income Tax. Get ahead and sign up today."
Myth-busting: MTD does not replace your tax return
HMRC clarified: "A lot of people think that Making Tax Digital replaces your annual tax return. It doesn't. You still have to file your tax return by the same date, and you still have to pay by the same date. The only difference is you do this via your software, and we'll automatically populate the return with any information we already hold."
The rules are being introduced in stages. Sole traders and landlords with qualifying income above £30,000 must use MTD from April 6, 2027, followed by those with income above £20,000 from April 6, 2028.
Points-based penalties and transition period
A points-based penalty system will replace current late submission penalties. HMRC explained: "Late submission penalties are changing to be points-based, a bit like driving licence points. When you hit a certain threshold, that's when a financial penalty will apply." For quarterly obligations, reaching four penalty points can result in a £200 penalty, with further penalties possible if deadlines continue to be missed.
HMRC said people already using MTD will not receive penalty points for missing quarterly update deadlines during the 2026/27 tax year, although the updates will still be a legal requirement. The transition period gives existing users time to adapt before penalties are enforced.
