Sole traders and landlords earning more than £50,000 a year will be required to use Making Tax Digital for Income Tax from April, marking a major change to how income is reported to HM Revenue and Customs (HMRC).
The new system will require affected taxpayers to keep digital records and submit quarterly updates to HMRC rather than filing information annually.
Financial experts at St James’s Place are urging taxpayers to prepare now to avoid potential penalties once the rules come into force.
Alexandra Loydon, group advice director at St James’s Place, said: “With the first stage of Making Tax Digital for Income Tax Self Assessment only two months away, those who will be affected need to start preparing now to avoid a last-minute rush ahead of the new tax year.”
She said the changes will apply to sole traders and landlords earning more than £50,000 a year from April 6, with HMRC estimating around 864,000 people will initially fall within scope.
Ms Loydon said early preparation could help taxpayers manage the transition to digital record keeping and reduce the risk of compliance issues.
She noted HMRC will not provide accounting software, meaning individuals must choose a compatible provider themselves, particularly if they do not already work with an accountant or adviser.
Under the new system, taxpayers will be required to keep digital records of income and expenses, including VAT and tax adjustments, and submit quarterly updates.
The new system will require affected taxpayers to keep digital records and submit quarterly updates to HMRC
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Ms Loydon said getting used to digital bookkeeping and reporting deadlines ahead of time would be key.
Failure to meet Making Tax Digital requirements could result in penalties under a points‑based system similar to a driving licence.
Repeated missed submissions can trigger a £200 fine. Late payments may also attract additional charges, starting at three per cent for payments between 16 and 30 days overdue and rising to six per cent after 30 days.
Additional daily interest can also be applied at 10 per cent per year until outstanding balances are cleared.
HMRC said individuals who are genuinely unable to use digital systems may be eligible for an exemption based on digital exclusion and should contact the department as early as possible.
HMRC said individuals who are genuinely unable to use digital systems may be eligible for an exemption
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Officials stressed that the changes will not require taxpayers to submit additional tax returns.
A spokesman said: “The required quarterly updates are simple summaries that your software generates automatically.
“Think of it as digital bookkeeping that talks to HMRC four times a year, rather than cramming everything into January for your Self Assessment return.”
Errors can be corrected in subsequent updates and more than 2,000 submissions have been made during testing, with positive feedback.
HMRC estimates around 780,000 self‑employed individuals and landlords will be required to use Making Tax Digital for Income Tax from April 2026, with a further 970,000 expected to join the system from April 2027 as the rollout expands.
The Government said the reforms are designed to modernise the tax system
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The Government said the reforms are designed to modernise the tax system and improve accuracy in reporting income and expenses.
Making Tax Digital has already been introduced for VAT‑registered businesses and forms part of a wider programme to digitise tax administration across the UK.
Tax experts say early preparation could help reduce disruption as the new reporting requirements are phased in.
The changes represent one of the largest shifts in self‑employed tax reporting in recent years, affecting hundreds of thousands of taxpayers across the UK.