Making Tax Digital for Income Tax: What Landlords and Sole Traders Must Do Before 6 April 2026

If you’re a landlord or sole trader and you haven’t heard much about Making Tax Digital for Income Tax, that’s partly because most of the coverage has been aimed at accountants rather than the people it actually affects.

HMRC has been sending mandation letters since November 2025, and right now, in February 2026, a fresh batch is landing on doormats across the country. On 6 April 2026, the rules change. If your qualifying gross income from self-employment or property exceeded £50,000 in the 2024-25 tax year, the way you report your income to HMRC changes permanently.

These changes were first signalled in our guide to the Autumn Budget 2025, which covers the wider compliance picture for this tax year.

We’ve spent the last several months sitting down with clients who received those HMRC letters, working through exactly what this means for them. Some were expecting it. Quite a few weren’t. And there’s one aspect of the rules that catches more people off guard than any other: it’s not your rental income alone, or your trading income alone, that determines whether you’re in scope. It’s both of them combined. If you have a side business and a rental property, you could already be mandated without realising it.

This article covers who is affected, what actually changes, what it costs to get set up, and the specific steps you need to take before 6 April 2026. We’ve kept the legal language to a minimum and focused on what matters to you.

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Making Tax Digital: The 864,000 Landlords and Sole Traders in Scope

864,000 sole traders and landlords must comply with MTD ITSA from 6 April 2026.

Of those:

• 605,000 are self-employed only
• 118,000 are landlords only
• 141,000 have combined self-employment and property income

A further 1,077,000 will be mandated from April 2027, and an additional 975,000 from April 2028, bringing the total to approximately 2.9 million individuals by 2028.

Source: GOV.UK MTD business population statistics, February 2026

864,000 Sole traders and landlords mandated from April 2026

£120m Additional tax revenue projected for 2026-27

£780m Projected revenue by 2028-29 (all phases)

£285 Average one-off transition cost per business (Phase 1)

HMRC has made no secret of why they want this data more frequently. The government’s own figures project an additional £120 million in tax revenue in 2026-27, rising to £780 million by 2028-29 as all phases come into effect. This isn’t a bureaucratic reshuffle. It’s designed to close what HMRC considers a gap between what self-employed people and landlords owe and what they actually pay.

The question of whether quarterly reporting will genuinely help you stay on top of your finances, or whether it’s primarily a revenue collection mechanism, is one I have a clear view on. Both things can be true. And on the practical side, there are real benefits to better in-year visibility over your tax position, as long as the setup is done properly from the start.

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Who Must Register for MTD for Income Tax from April 2026: The Rules and the Trap Nobody Mentions

The threshold and how it works

Phase 1 applies to anyone whose qualifying gross income from self-employment and property combined exceeded £50,000 in the 2024-25 tax year. That threshold is based on the return you filed by 31 January 2026. HMRC uses the gross figures you declared, not your profit after expenses.

Three points that matter here:

First: it’s gross income, not net profit. If you have three rental properties bringing in £60,000 in rent per year but your mortgage interest, repairs, and letting agent fees reduce your taxable profit to £18,000, you’re still in Phase 1. The threshold is applied to your gross receipts, before any deduction.

Second: “exceeds” means strictly above £50,000. If your combined qualifying income was exactly £50,000, you’re not mandated for Phase 1. You need to be over that figure. But if you’re anywhere above it, even by £1, you’re in.

Third: the threshold combines income from different sources. This is the rule that catches people who genuinely had no idea they were in scope.

The combined income trap

Here’s the thing nobody’s properly explaining in the coverage I’ve seen. Many landlords and sole traders look at their individual income streams and think, “I’m nowhere near £50,000.” They are right, taken in isolation. But HMRC adds them together.

A self-employed consultant earning £36,000 in fees and renting out a flat for £18,000 a year has qualifying income of £54,000. A plumber with a turnover of £44,000 who owns one rental property generating £12,000 a year has qualifying income of £56,000. Neither person thinks of themselves as a high earner. Both of them are in Phase 1 from 6 April 2026.

Employment income from a PAYE job doesn’t count. Dividends don’t count. Pension income doesn’t count. Partnership shares (as an individual partner) don’t count. But if you have any combination of gross self-employment trading receipts and gross rental income, those two figures are added together to determine your mandation date.

If you have a jointly owned property, each co-owner’s share of the rental income counts separately toward their own threshold, not the combined total. We cover this in more detail in the joint ownership section below.

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What Actually Changes: Old Self Assessment vs MTD ITSA

This is the table I find myself drawing on paper in client meetings. It’s the fastest way to show what’s genuinely different and what hasn’t changed at all.

Self Assessment (until April 2026) 1 Annual return per year

→

MTD ITSA (from April 2026) 5 4 quarterly updates + 1 Final Declaration

Feature	Self Assessment (until April 2026)	MTD ITSA (from April 2026)
Reporting frequency	Once a year	Four quarterly updates + one Final Declaration
Filing method	HMRC online portal or paper	Third-party compatible software only (as required by The Income Tax (Digital Requirements) Regulations 2021, SI 2021/1076)
Record keeping	Paper, spreadsheets, or software, your choice	Must be digital
First submission deadline	31 January (annual return)	7 August 2026 (first quarterly update)
Final Declaration / annual return deadline	31 January	31 January (unchanged)
Tax payment deadlines	31 January + payments on account	31 January + payments on account (unchanged)
End of Period Statement	Required as separate annual submission	Abolished. Merged into Final Declaration.
Late filing penalty	Fixed £100 immediately after deadline	Points-based: four points triggers a £200 penalty
Penalty grace period	None	First 12 months: no penalty points for late quarterly updates
Software requirement	Optional	Mandatory

Sources: GOV.UK MTD Impact Assessment; HMRC sign-up guidance; ICAEW MTD for income tax penalties guide

Everything else, the payment dates, the final declaration deadline, the tax calculation itself, stays the same.

One thing I want to address directly, because several older articles and pieces of advice still get this wrong: the End of Period Statement (EOPS) has been abolished. You may have seen references to EOPS in coverage from 2023 and 2024. That requirement was removed and the EOPS function has been folded into the Final Declaration. If your accountant or any software you’ve looked at is still talking about EOPS as a separate submission, that information is out of date.

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The Quarterly Deadlines for 2026-27

Your first quarterly update covers the period from 6 April to 5 July 2026, and it’s due by 7 August 2026. After that, three more updates follow at roughly quarterly intervals, with a Final Declaration due by 31 January 2028, the same date your 2026-27 Self Assessment return would have been due under the old system.

6 April 2026		MTD ITSA Phase 1 begins Digital record-keeping mandatory for qualifying income above £50,000. First quarterly period starts.
7 August 2026		Q1 submission deadline First quarterly update due (covers 6 April to 5 July 2026). Grace period applies: no penalty points if late.
7 November 2026		Q2 submission deadline Second quarterly update due (covers 6 July to 5 October 2026). Grace period still applies.
7 February 2027		Q3 submission deadline Third quarterly update due (covers 6 October 2026 to 5 January 2027). Grace period still applies.
7 May 2027		Q4 submission deadline Fourth quarterly update due (covers 6 January to 5 April 2027). Grace period still applies.
31 January 2028		Final Declaration deadline Replaces the annual Self Assessment return. Grace period does NOT apply: penalty points issued for late submission.

Quarter	Standard Period	Calendar Period (if elected)	Submission Deadline
Q1	6 April to 5 July 2026	1 April to 30 June 2026	7 August 2026
Q2	6 July to 5 October 2026	1 July to 30 September 2026	7 November 2026
Q3	6 October 2026 to 5 January 2027	1 October to 31 December 2026	7 February 2027
Q4	6 January to 5 April 2027	1 January to 31 March 2027	7 May 2027
Final Declaration	Whole year	Whole year	31 January 2028

Sources: HMRC MTD campaign site; HMRC developer service guide

You can elect to report on calendar quarters (January to March, April to June, and so on) rather than the standard tax quarters (6 April to 5 July, and so on). Many of our clients prefer this because it aligns better with how they already think about their finances, particularly if they reconcile their accounts monthly. The submission deadlines are the same either way. This election is made through your software, not through HMRC’s online services directly.

If you make an error in a quarterly update, you don’t need to go back and resubmit the previous quarter. The updates are cumulative, meaning you simply correct the figure in your next submission. This is a sensible simplification that reduces the administrative pressure of getting every quarterly update exactly right first time.

The grace period that matters

HMRC has confirmed a soft landing for the first 12 months. If you’re late with a quarterly update during 2026-27, HMRC won’t issue penalty points. That doesn’t mean the deadlines don’t apply, and it doesn’t mean you should plan to miss them. But it does take some of the anxiety out of the transition year while you get to grips with the new software and cadence.

The grace period doesn’t apply to the Final Declaration. If you miss the 31 January 2028 deadline for your first Final Declaration, penalty points do apply. That deadline carries the same weight it always has.

The new penalty system works differently from the old fixed £100 fine. For quarterly submissions, you accumulate one point for each late submission, and a £200 penalty is triggered once you reach four points. Points reset to zero after a 12-month clean period.

Submission type	Points to trigger penalty	Penalty amount
Quarterly updates	4 late submissions	£200
Final Declaration	2 late submissions	£200

The old system penalised you immediately and increasingly for longer delays. This system gives you more tolerance for occasional slippage, but less tolerance for persistent lateness.

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The MTD for Income Tax Rollout: When Does This Apply to You?

If your qualifying income is below £50,000 right now, you may have more time than you think. But the phases move quickly, and the Phase 2 threshold is lower than many people expect.

Phase	Income Threshold	Effective Date	Estimated Taxpayers
Phase 1	Qualifying income above £50,000 in 2024-25	6 April 2026	864,000
Phase 2	Qualifying income above £30,000 in 2025-26	6 April 2027	1,077,000 additional
Phase 3	Qualifying income above £20,000 in 2026-27	6 April 2028 (proposed)	975,000 additional
Total eventual scope	All above £20,000	By April 2028	Approx. 2,916,000

Source: GOV.UK MTD business population statistics; GOV.UK news release, February 2026

Phase 3 has been announced as government policy but the specific legislation is still being finalised. We’ll update our guidance when that picture becomes clearer.

The key point here is about which year’s income determines your mandation date. For Phase 1, it’s the gross qualifying income on your 2024-25 Self Assessment return (the one due 31 January 2026). For Phase 2, it will be the income on your 2025-26 return (due January 2027). For Phase 3, it will be the 2026-27 return. So if your income sits close to one of the thresholds, the return you’ve already filed, or are about to file, determines when you come into scope.

For a broader view of the compliance pressures coming together this year, see our piece on what the 2025-26 tax year means for UK small businesses.

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Two Real-World Examples

The landlord who thought MTD was “for businesses”

The IT contractor caught by the combined income trap

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MTD-Compatible Software: What to Use and What It Costs

HMRC won’t provide its own MTD filing portal. All quarterly submissions must go through compatible third-party software. There’s no way around this, and there’s no free government portal option for MTD ITSA.

That said, HMRC has committed to ensuring free software is available for the smallest businesses with straightforward affairs. And for those with NatWest, Royal Bank of Scotland, or Ulster Bank business current accounts, FreeAgent is available at no additional charge.

Software	Monthly Price	Suitable for Landlords	Suitable for Sole Traders	Free Option
FreeAgent	£10/month (landlord); £19/month (sole trader)	Yes	Yes	Free with NatWest, RBS, or Ulster Bank business account
QuickBooks Sole Trader	£10/month	Limited	Yes	No (introductory offer available)
Xero	Simple £7/month; Ignite £16/month; Grow £37/month	Yes	Yes	30-day trial only
Sage	Various plans available	Yes	Yes	No

Sources: FreeAgent pricing; QuickBooks UK pricing; Xero UK pricing plans. Prices exclude VAT and are correct as at February 2026. Software pricing changes frequently, so verify directly with each provider before choosing.

For most landlords with straightforward property income and no registered business, FreeAgent’s landlord plan at £10 per month is the most cost-effective starting point. For sole traders who also have property income, a sole trader plan that handles both streams in one place makes more practical sense than managing two separate tools.

A note on spreadsheets: they are permitted under MTD, but with a significant caveat. You can use a spreadsheet to maintain your digital records, but you can’t then manually re-key or copy-paste that data into a separate software package to make the submission. The two systems must be digitally linked. In practice, for most of our clients, it’s simpler and more reliable to use one of the purpose-built MTD tools and leave the spreadsheet workaround aside entirely.

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Joint Owners: You May Face Different Mandation Dates

If you jointly own a rental property, Making Tax Digital for Income Tax applies to each owner individually. Each owner’s share of the rental income counts separately toward their own qualifying income threshold. The combined rental figure doesn’t determine mandation. Each co-owner’s individual share does.

For jointly-owned property specifically, there’s also a useful simplification available: co-owners can report just the income amounts in their quarterly updates and defer the related property expenses to the Final Declaration. This reduces the burden of quarterly data capture for landlords whose expense records are more complex than their income records.

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If You Haven’t Received a Mandation Letter

HMRC sent the first batch of mandation letters in November 2025, to taxpayers who filed their 2024-25 return by the end of August 2025. A second batch went out in February and March 2026, covering those who filed between September 2025 and January 2026. A final batch is going out from mid-March 2026, and some letters from that batch may arrive after 6 April 2026 itself.

Here’s the important point: not receiving a letter doesn’t exempt you from MTD. If your qualifying income exceeded £50,000 in 2024-25, you’re mandated from 6 April 2026 regardless of whether a letter arrived. The obligation sits with you, not with HMRC’s postal campaign.

There’s also a practical point about how agent representation works here. If we act as your tax agent, we don’t automatically receive a copy of any mandation letter HMRC sends you. They go directly to you. If you received one and haven’t yet spoken to us about it, now is the time.

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What Does Making Tax Digital for Income Tax Actually Cost You?

HMRC’s own impact assessment on Making Tax Digital for Income Tax puts the average one-off transitional cost at £285 for Phase 1 taxpayers, covering the time and effort of getting set up on compliant software. The average ongoing annual compliance cost for Phase 1 taxpayers is estimated at £115 per year. Those are HMRC’s figures, and they represent an average across a wide range of business types. In practice, the cost depends heavily on which software you choose and how your records are currently kept.

For a landlord moving from a basic spreadsheet to FreeAgent’s landlord plan, the additional annual cost is around £120 excluding VAT. For a sole trader switching to QuickBooks, it’s a similar figure. For a more complex business with multiple income streams and VAT registration, the software cost may be higher, and there may be additional accountant time involved in the transition.

Across all mandated businesses, HMRC estimates the total transitional burden at £561 million and the total annual ongoing net burden at £196 million. These aren’t small numbers. They reflect a real cost being imposed on self-employed people and landlords to fund a reporting system that primarily benefits HMRC’s revenue collection.

We’ve written separately about what these policy changes mean for small businesses and the compliance burden accumulating in 2025-26.

I’m going to be honest about that, because I think it’s fair to acknowledge it directly. Making Tax Digital will cost you something, in time, money, or both. That said, the businesses we work with who approach this well, who choose the right software, set up clean digital records from the start, and use the quarterly submissions to stay on top of their tax position, do find real value in having a clearer picture of their finances throughout the year. The question is how you approach the transition.

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Former Holiday Let Owners

One specific group worth a mention: if you were operating a Furnished Holiday Let before April 2025, the tax regime that applied to those properties was abolished from 6 April 2025. From 2025-26 onwards, all residential property income, whether long-let, short-let, or holiday let, is reported as a single property business.

This actually simplifies MTD reporting for former FHL owners. You no longer need to worry about a separate FHL category in your quarterly submissions. All your rental income rolls into one property business. The trade-off is the loss of FHL-specific tax benefits, including capital allowances on furniture and the ability to set FHL losses against general income, but those changes were the subject of a separate announcement and the MTD simplification is a small practical upside.

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Exemptions: Who Might Not Have to Comply

Most landlords and sole traders who exceed the threshold won’t qualify for an exemption. But there are genuine grounds for exemption that apply to a small number of people.

HMRC will consider an exemption application if using digital tools isn’t reasonably practicable due to:

• Age
• Disability
• Remote location with inadequate internet access
• Religious beliefs
• Foster carer status (a specific new exempt category for MTD ITSA)
• Inability to obtain a National Insurance number

What doesn’t qualify: having only ever filed paper returns, having few transactions, or believing the costs and time involved are disproportionate. The bar for exemption is set high, and “I prefer not to use software” isn’t grounds.

If you think you may have genuine grounds for exemption and haven’t yet applied, contact HMRC now. The window for securing an exemption ahead of the 6 April 2026 start date is very narrow.

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Your MTD Action Plan Before 6 April 2026

If you’re mandated for Making Tax Digital for Income Tax from 6 April 2026, here’s what we recommend doing in the next few weeks.

This week: Work out your qualifying income figure from your 2024-25 Self Assessment return. Add your gross self-employment income and your gross rental income together. If the combined total exceeds £50,000, you’re mandated from 6 April 2026. If you’re not sure of your figure, speak to us and we’ll check the return with you. You can also use HMRC’s eligibility checker to verify your own position.

By the end of February: Choose your MTD-compatible software. For most landlords with straightforward property income, FreeAgent’s landlord plan at £10 per month is a sensible starting point. For sole traders with mixed income, QuickBooks Sole Trader at £10 per month handles both streams in one tool. If you’re a NatWest, RBS, or Ulster Bank business account holder, check whether FreeAgent is available to you free of charge through your bank.

Before 6 April 2026: Get your digital records set up in the software. This means entering your income and expense transactions digitally from the start of the new tax year. You do not need to retrospectively enter historical data for periods before April 2026 in your new software, but everything from 6 April 2026 onwards must be recorded digitally at the time it occurs.

By 7 August 2026: Submit your first quarterly update, covering the period from 6 April to 5 July 2026 (or 1 April to 30 June if you’ve elected calendar quarters). The grace period applies to this submission, so no penalty points will be issued if you’re a little late, but aim to submit on time regardless.

Ongoing: Keep your digital records up to date throughout the year. The quarterly updates are significantly less stressful if you’re entering transactions regularly rather than scrambling to catch up at the end of each quarter. If you want a practical system for doing this, see our post on monthly bookkeeping habits that make quarterly MTD updates straightforward.

If you haven’t already spoken to us about your MTD transition, and you believe you’re in scope for Phase 1, please don’t leave this until late March. The last two weeks before any major tax deadline are always our busiest period. Clients who come to us now get the most thorough setup and the least rushed transition.