Sole traders and landlords across the UK are being urged to take immediate action to prepare for major tax reporting changes coming into force next year under the government’s Making Tax Digital (MTD) initiative.
The first phase of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will apply from April 2026 to individuals with annual income over £50,000.
According to new analysis from St James’s Place, around 864,000 people will be affected, many of whom are yet to begin preparing for the transition.
Under the new rules, taxpayers will be required to keep and submit their income and expense records digitally using HMRC-compatible software, with quarterly reporting deadlines replacing the traditional single annual return.
PREPARATION ESSENTIAL
Those who fail to comply risk facing escalating financial penalties similar to those applied for late Self Assessment filings.
While HMRC will allow exemptions for those who are “digitally excluded” – such as individuals without reliable access to digital tools – the firm warns that early preparation is essential to avoid disruption and potential fines once the system goes live.
With fewer than six months to go before the start of the first reporting period, St James’s Place says affected taxpayers should identify suitable accounting software and begin keeping digital records as soon as possible.
SOLE TRADERS AND LANDLORDS
Alexandra Loydon, Group Advice Director at St James’s Place, says: “With less than six months to go until the first phase of the government’s Making Tax Digital for Income Tax Self-Assessment comes into force, it’s vital that those affected act now to make sure they are ready for the new tax year.
“This phase will apply to sole traders and landlords with an annual income over £50,000, and it’s estimated that around 864,000 individuals across the UK will be affected.
“For those who haven’t yet started preparing, beginning the transition now will make adapting to the new rules far easier and help ensure you don’t fall short later.
“HMRC does not provide its own accounting software, so for those just getting started, a key first step will be finding a compatible provider – particularly if you don’t already use a financial adviser or accountant.
“The new system requires taxpayers to maintain digital records of income, expenses, VAT and tax adjustments, so the next step is to start collecting and storing those records digitally, while also familiarising yourself with quarterly reporting deadlines before 6 April 2026.”
PENALTY PAYMENTS
And she adds: “Like the broader Self Assessment deadline, the Making Tax Digital scheme also carries penalties for those who fail to comply. These operate much like points on a driving licence: while one missed report might not have an immediate impact, repeated missed deadlines can quickly result in a £200 fine.
“Payment delays also incur penalties, with a 3% charge on the outstanding balance for payments made 16 to 30 days late, and a 6% penalty once the delay reaches 30 days. After this point, the situation becomes more serious, with a further penalty accruing daily at 10% per year until the debt is cleared.”
