Making Tax Digital: what should landlords and sole traders know?

Making Tax Digital (MTD) is set to change how some landlords and sole traders record and report their income to HMRC. It will replace current Self Assessment returns with digital record keeping and quarterly reporting.

From 6 April 2026, landlords and sole traders must use MTD. What do you need to know?

If you are affected, you may receive a letter from HMRC, but not necessarily. Here is what you need to know, including when the new rules apply, what records you’ll need to keep, how to prepare, and how to sign up.

Who Will Be Affected?

MTD will apply to some landlords and self-employed traders whose gross income exceeds certain thresholds. Gross income means your total rental income received or your sole trader sales before any expenses or allowances are deducted.

If you own property jointly, only your share of the rent counts towards the threshold. If you are both self-employed and a landlord, your gross property and business income will be combined to determine when MTD applies.

Your qualifying income is this combined figure, but it does not include employment income, pensions or dividends.

A non-resident or domiciled individual will also have to join MTD if they have UK self-employment or UK property and meet the qualifying income threshold.

MTD does not affect companies, so if you run your business or rentals through a company then they are not affected. MTD also does not apply to partnerships or partners in a partnership unless they have their own rental business or sole trade. 

When Will MTD Apply?

The government is introducing MTD in phases:

Your income level will be based on the figures reported in your most recent Self Assessment tax return.

What Will Change Under MTD?

Once you fall within MTD, you will have to:

• Keep digital records
• Submit quarterly updates
• File a final annual digital tax return

1. Digital record keeping

You must keep digital records of your income and expenses using HMRC-approved software. This could be a cloud accounting system or a spreadsheet linked to bridging software.

Your digital records must include:

• Date of transaction
• Amount received or paid
• Category (e.g. rent, insurance, repairs)

You don’t have to keep digital copies of receipts and invoices as long as the information is recorded in the digital records. Note that MTD does not remove the usual requirements to keep records supporting a tax return.

2. Quarterly updates

Instead of one annual return, landlords and sole traders will send a summary of income and expenses to HMRC every three months:

If you have rental income and sole-trader income, you must submit separate quarterly updates for both income sources (making 8 quarterly updates each year). Overseas rental income must also be reported separately.

You can start your quarters from 1 April instead if this makes your administration easier, but the submission deadline remains the same.

If you are a new sole trade or landlord starting in 2025 with an income of over £50,000, the rental income or sole trade business needs to be reported on a self-assessment return prior to it entering MTD. You will file your first return for tax year 2025/26, so the earliest you will enter MTD is April 2027.

Errors etc.

If you make an error in a quarterly update, such as missing off an item, quarterly updates are cumulative so you won’t need to refile the update containing that error.  Instead, you can make the correction in the next update.

However, where the fourth quarterly update has been filed, you can either resend that update or adjust the figure in your software when completing the tax return. HMRC has further guidance on this.

Note that when preparing your quarterly updates, these can be on a cash basis (drawing from your bank account feed, for example), so there is no need to deal with accruals, prepayments, or other adjustments. Where such adjustments need to be made, they can be reflected in your end-of-year tax return. 

3. Annual digital tax return

After the fourth quarterly update, landlords and sole traders will need to complete a final digital tax return. 

This confirms all income for the year and includes other sources such as employment income, bank interest or dividends. The return will be pre-populated with a lot more information than is currently the case as it will have drawn the data from your quarterly submissions.

Submission and payment deadlines remain unchanged: 31 January each year.

Simplifications for Smaller Landlords and sole traders

Some landlords and sole traders can benefit from simplified reporting:

• If your rental income or sole trade income is under £90,000 (the VAT registration threshold), you can report total figures for income and expenses without itemising categories.
• If you own property jointly, you can report only your share of income quarterly and add expenses at year end.

How to Prepare

To get ready for MTD:

• Check if your qualifying income (gross rental income or sole trade sales) exceed the threshold.
• Select compatible digital software. Check out HMRC's guide to software.
• Start keeping digital records as soon as possible.
• Register for MTD in advance; HMRC will not enrol you automatically (even if you receive a letter from the department).
• Contact your Bishop Fleming advisor for advice and assistance.

More information can be found on our Making Tax Digital service page.

Contact us

MTD is a major change for landlords and sole traders, replacing annual tax returns with quarterly digital reporting. 

If you prepare early by moving to digital record keeping now you will be better placed to comply and avoid penalties once the rules take effect.

Speak to your usual Bishop Fleming advisor or a member of our Making Tax Digital Team.