From April 2026, many sole traders and landlords will need to keep digital records and send quarterly updates to HMRC using compatible software. This will change how affected businesses manage their tax records, report income and expenses, and prepare for their annual tax return.
For businesses that already use accounting software and keep records up to date, the change may be manageable. For those still relying on spreadsheets, paper records or once-a-year bookkeeping, Making Tax Digital could require more preparation.
This guide explains what is changing, who will be affected, and what businesses should do before the rules apply.
What is Making Tax Digital?
Making Tax Digital, often shortened to MTD, is HMRC’s move towards a more digital tax system.
The aim is to make tax reporting more accurate, more regular and more efficient by requiring businesses to use compatible software to keep records and send information to HMRC.
MTD is already in place for VAT-registered businesses. The next major stage is Making Tax Digital for Income Tax, which will affect some sole traders and landlords from April 2026.
Under the rules, affected individuals will need to use compatible software to:
Keep digital records of business and/or property income and expenses.
Send quarterly updates to HMRC.
Finalise their tax position and submit their tax return through MTD software.
Pay any tax due by the usual deadline.
This means tax reporting will become more regular throughout the year, rather than being focused mainly around the annual Self Assessment deadline.
Who will Making Tax Digital affect in 2026?
From 6 April 2026, Making Tax Digital for Income Tax will apply to sole traders and landlords who are registered for Self Assessment and have qualifying income of more than £50,000 from self-employment, property income, or both.
Qualifying income is generally based on gross income before expenses. For example, a sole trader with annual business income above the threshold, or a landlord with rental income above the threshold, may need to comply.
Where someone has both self-employment income and property income, these income sources may be combined when working out whether the threshold is exceeded.
Limited companies are not included in the April 2026 MTD for Income Tax rollout. However, company directors, landlords or sole traders with other income sources may still need advice on their personal tax position.
What will businesses need to do differently?
The biggest change is that affected businesses will need to move from annual record collation to ongoing digital record keeping.
Instead of gathering information at the end of the year, income and expenses will need to be recorded digitally on a regular basis using compatible software.
Affected businesses will need to:
Choose compatible MTD software.
Keep digital records of income and expenses.
Categorise transactions correctly.
Send quarterly updates to HMRC.
Review and finalise their tax position at the end of the year.
Submit their tax return through MTD software.
For many businesses, this will make bookkeeping more frequent and more structured.
Quarterly updates to HMRC
Once signed up to MTD for Income Tax, businesses will need to send quarterly updates to HMRC for each relevant source of income, including self-employment and property income. These updates are summaries of business income and expenses created from digital records and submitted through compatible software.
The first quarterly update deadline for those joining from April 2026 will be 7 August 2026. Further quarterly updates are due by 7 November 2026, 7 February 2027 and 7 May 2027.
These updates are not the same as a final tax return. They provide HMRC with regular summaries during the year and may help businesses see an estimated tax position earlier.
Will businesses still need to submit a tax return?
Yes. Making Tax Digital does not remove the need to finalise the year-end tax position.
Affected individuals will still need to complete their tax return process using compatible software. This includes checking the figures, making adjustments, claiming reliefs or allowances where relevant, adding other income or gains, and paying any tax due.
For those entering MTD from April 2026, the final tax return for the 2026 to 2027 tax year will need to be submitted by 31 January 2028.
This means businesses should not think of quarterly updates as a replacement for year-end tax work. Instead, they are an additional reporting requirement that makes accurate ongoing bookkeeping more important.
Why preparation matters
MTD will create challenges for businesses that currently leave bookkeeping until the end of the year.
Common issues may include:
Records not being kept digitally.
Income and expenses not being categorised correctly.
Personal and business costs being mixed together.
Rental income or self-employment income being incomplete.
Software not being compatible with MTD.
Lack of clarity over who is responsible for submissions.
Missing quarterly deadlines.
Preparing early gives businesses time to choose the right software, clean up their records and put a more reliable process in place before the rules apply.
How Making Tax Digital may benefit businesses
Although MTD introduces extra requirements, it can also help businesses improve the way they manage their finances.
Potential benefits include:
Better visibility over income, expenses and profit.
Fewer year-end surprises.
More accurate tax estimates during the year.
Improved cash flow planning.
Easier collaboration with accountants or tax advisers.
Reduced risk of missing records or making avoidable errors.
For business owners who currently only review their numbers once a year, MTD can encourage better financial habits and more proactive tax planning.
What should businesses do now?
Businesses that may be affected in 2026 should start preparing as soon as possible.
Key steps include:
Check whether your qualifying income is above the threshold.
Review how you currently keep records.
Move from paper or manual systems to digital bookkeeping.
Choose compatible MTD software.
Make sure income and expenses are being categorised properly.
Review whether you have both property and self-employment income.
Speak to an accountant or tax adviser about your obligations.
Agree who will handle quarterly submissions.
Build a process for reviewing figures throughout the year.
The earlier this is done, the easier it will be to avoid disruption when the rules apply.
How tax advisory support can help
Making Tax Digital is not just a software change. It affects tax compliance, bookkeeping processes and year-round reporting.
A tax advisory team can help you understand whether you are affected, what records you need to keep, which deadlines apply and how to prepare your business before April 2026.
Professional support can also help ensure your records are accurate, your expenses are categorised correctly and your tax position is reviewed before submissions are made to HMRC.
For businesses with multiple income sources, property income, growing turnover or more complex tax affairs, getting advice early can reduce the risk of errors and help avoid last-minute pressure.
Need help preparing for Making Tax Digital?
Making Tax Digital will change how many sole traders and landlords report income and expenses from 2026.
At Wisteria, we support businesses, landlords and individuals with tax compliance, tax advisory and accounting services. We can help you understand whether MTD applies to you, prepare your records, choose the right process and stay compliant with HMRC requirements.
If you are unsure how Making Tax Digital will affect you, now is the right time to prepare.