Preparation essential for sole traders and property owners regarding forthcoming Mandatory Digital Tax filing, with just 12 months remaining.
Over 780,000 high-earning sole traders and landlords in the UK will have until next year to prepare for a significant change in their tax reporting process. The shift targets the use of the HMRC's Making Tax Digital (MTD) system for reporting taxes, which is currently mandatory for businesses registered for VAT.
The extension of the MTD system, aimed at modernizing the tax system, will be applicable to sole traders and landlords from April 2026. Businesses with a total gross income of £50,000 or more will need to utilize digital records and submit quarterly updates on their income and expenses to the HMRC.
In an attempt to minimize the last-minute rush of finding documents for self-assessment tax returns, the MTD system is expected to digitize the income tax process, utilizing online data for easier access and submission.
The transition of the MTD system, first introduced for VAT-registered businesses in 2019, is part of a larger plan to transform the UK's tax system, aligning it with economic growth. The effort hopes to facilitate more efficient and productive business practices while ensuring fair tax contributions.
As the MTD system progressively expands, it will also be extended to include those with an annual business or property income of over £30,000 from April 2027. Around 780,000 self-employed individuals and landlords will be required to use MTD for income tax from April 2026, with an estimated 970,000 more joining from April 2027.
Rodolphe Malaguti, head of product strategy and transformation at business support platform Conga, acknowledged the need for careful preparation in the transformation process. Senior leaders must work towards establishing a unified data-sharing system to streamline communication across HMRC departments, ensuring seamless data processing for timely and accurate tax updates.
As the phased rollout continues, accountants and sole traders should prepare for the upcoming changes, ensuring their software is compatible with MTD requirements and their data-sharing processes are streamlined for efficient and effective digital transformation.
Subscribers to the personal finance newsletter should note the upcoming change in the tax reporting process for sole traders and landlords in the UK. From April 2026, these groups will need to use digital records for their personal-finance activities and submit quarterly updates on their property and income to the HMRC, under the Making Tax Digital (MTD) system.
Towards 2027, the MTD system will be expanded to include self-employed individuals and landlors with an annual business or property income of over £30,000, nearly doubling the number of affected individuals. In preparation for these changes, accountants and sole traders are advised to ensure their software is MTD-compatible and their data-sharing processes are streamlined for a smooth digital transformation.
