MTD may seem like an innocent trio of letters, but for landlords earning over £50,000 they mark a significant change in accounting rules from April 2026.
What is MTD
MTD, or Making Tax Digital, is the government’s plan to digitise tax reporting. It was first announced in 2015 and introduced for VAT-registered businesses in 2019, impacting all VAT-qualifying businesses from April 2022.
MTD for ITSA – Making Tax Digital for Income Tax Self-Assessment – requires that landlords and sole traders keep digital records of their rental income and expenses and file quarterly updates to HMRC using MTD-compatible software in addition to their final end-of-year tax submission.
It’s a major change for landlords and self-employed individuals who might previously have waited until January to sort out their accounts.
Why is it being introduced?
The government’s hope is that MTD will bring the tax system closer to real-time reporting, helping businesses to take better control of their finances by spreading their accounting submissions more evenly across the year and avoiding the last-minute rush to submit.
Who will it apply to and when does it start?
MTD for ITSA applies to landlords and sole traders with an income of more than £50,000 in the 2024/25 tax year and will go live on 6 April 2026. It includes gross income from self-employment and property before tax allowances or expenses are deducted.
Around 780,000 self-employed individuals and landlords will be required to use MTD for Income Tax from April 2026, according to government figures. From April 2027, it will also apply to anyone with an income above £30,000, impacting a further 970,000. From April 2028, the threshold will fall again to £20,000.
What do you need to do to comply
If your income level qualifies you for MTD, you should sign up for the service before you need to use it. First, you will need to choose the software you want to use, since this is not provided by HMRC. The commercial software must be able to create, store and correct digital records of your property income and expenses for HRMC, send your quarterly updates and be able to submit your tax return by 31 January the following year. Bridging software can also be used instead of full-blown accounting software. This connects to existing records such as spreadsheets or other accounting tools and submits the information to HMRC.
Once you have chosen your software, you need to use the government’s online service to sign up for MTD. You’ll use the same user ID and password as for self-assessment, but may need to pass further identity checks, including face matching to your passport or driving licence and additional proof-of-identity questions.
You will then be ready to start your MTD submissions, due every on the 7th of every three months. In the first year, your quarterly updates are due by August and November, followed by February and May in 2027. Your full 2026/27 tax return will need to be submitted directly from your MTD software before 31 January 2028, rather than filed online via the HRMC website. Remember that while you are submitting these current statuses of your accounts you will also still need to submit your 2025/2026 tax return via the old method before January 2027.
Once established, there will be a points-based penalty system for missing submission deadlines, which will ultimately result in a fine. However, there will be no penalties for late quarterly updates in the first year, although penalties will still apply for late tax returns or payments.
For more information on how we can assist you on your lettings journey, please contact one of our branches in Essex, London or Hertfordshire today. We also offer a free and instant online valuation to give you an idea of how much your property could be worth on the current market.
