More than 860,000 individuals across the UK will be required to submit regular financial updates to HM Revenue and Customs starting in April 2026, as the government rolls out its Making Tax Digital initiative. This programme mandates that sole traders and landlords with earnings exceeding £50,000 from self-employment or property income must adopt the digital system from 6 April 2026.
What is Making Tax Digital?
Making Tax Digital is a UK government scheme designed to modernise the tax system by requiring businesses and landlords to maintain digital records and file quarterly tax updates using compatible software. Under this new framework, sole traders will need to submit at least five updates annually: four quarterly reports on income and expenses, plus an end-of-year tax return. For those who are both self-employed and landlords, this requirement doubles, potentially leading to over 10 filings per year, not including VAT returns.
Income Thresholds and Timeline
The initial threshold for compliance is set at £50,000, but this will decrease in the coming years. From April 2027, individuals earning over £30,000—estimated at 970,000 people—will be included, and by 2028, the threshold will drop to £20,000, bringing millions more into the system. Free software options are available to assist with recording income and expenses, generating summaries for HMRC submission.
Penalty System
A new penalty points system will be implemented for late submissions. Points accumulate for each missed deadline, with a £200 fine only applied once four points are reached. This approach aims to allow for occasional errors without immediate financial penalties.
Key Deadlines for 2026-2027
- 6 April 2026: Start keeping digital records using Making Tax Digital.
- 7 August 2026: Deadline for the first quarterly update.
- 7 November 2026: Deadline for the second quarterly update.
- 31 January 2027: Deadline for self-assessment tax return submission.
- 7 February 2027: Deadline for the third quarterly update.
- 7 May 2027: Deadline for the fourth quarterly update.
- 7 August 2027: Deadline for the first quarterly update of the 2027/28 tax year.
- 7 November 2027: Deadline for the second quarterly update.
- 31 January 2028: Deadline for tax return submission using Making Tax Digital.
Expert Opinions and Concerns
Critics argue that the new system adds significant administrative pressure. Taryn Lee Johnston, owner of The FCM Group, expressed concerns about the increased frequency, cost, and time demands, stating that many small business owners lack in-house finance teams and may need to hire accountants or divert time from business growth. She highlighted a contradiction with government aims to foster entrepreneurship.
Gwion Thomas, founder of accounting app LITT, advised affected individuals to prepare early to avoid last-minute issues, emphasising the importance of understanding requirements ahead of the April rollout.
However, some see benefits. Research from Sage indicates that 23% of UK business owners spend over six hours on tax returns annually. Lisa Ewens of Sage noted that digital tools could distribute the workload, reduce stress, and provide clearer financial insights throughout the year, making tax management more manageable for sole traders.
Broader Implications
As Making Tax Digital expands, it represents a shift towards greater digitalisation in tax compliance, with potential impacts on small business operations and economic growth. The debate continues between modernisation goals and the practical burdens on self-employed individuals and landlords.
