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Making Tax Digital is coming for small businesses, landlords and the self-employed – are you prepared?
This is the biggest change to self-assessment reporting to date and represents a big change in the way many businesses keep their records, and the frequency with which they submit information to HMRC.
At Haines Watts we are here to cut through the jargon and help guide you through the changes.
What is Making Tax Digital
This idea aims to make tax procedures easier for businesses and the self-employed and get their tax right, by submitting returns quarterly instead of annually. This means that 4 returns will have to be completed instead of one at the end of the year.
You will be required to use a compatible software to keep digital records and send HMRC real time updates for your income tax. For most people the simplest option is to use an established accounting software package such as Xero.
HMRC will be making changes to their existing and future online presence as MTD rolls out, and some services will no longer be available to use, as MTD develops.
The first stage of MTD has already been implemented for businesses submitting VAT returns. The government’s focus is now on Self-Assessment Income Tax Returns for most sole traders and landlords, and is expected to include 4.2 million tax payers.
There are three primary changes that sole traders and landlords will need to prepare for:
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A shift from one annual self-assessment tax return per year, to four quarterly update statements.
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A new End of Period Statement (EOPS) for each of your businesses, submitted on 31 January.
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And a Final Declaration. This replaces the old tax return and brings together your income from your sole trade businesses, your properties and any other income you may have, such as interest, dividends and employment income.
If you do not already make use of online software don't delay in researching what is available. It will take time to get up and running ahead of the 2026/2027 deadlines. Check out our blog comparing the top 3 options here
Who Is Affected
From April 2026:
Requirements apply from April 6th 2026 if you fit all of the following;
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Are an individual.
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Are registered for Self Assessment.
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Were self-employed or collecting income from property before 6 April 2025.
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Have a qualifying income of more than £50,000.
This will include most sole traders and those with property income.
From April 2027:
Requirements apply from April 6th 2027 if you fit all of the following;
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Are an individual.
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Are registered for self assessment.
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Were self-employed or collecting property income before 6 April 2026.
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Have a qualifying income of more than £30,000.
Sole traders and those with property income over £50,000 will have to comply with MTD for Self Assessment Tax Returns from 6 April 2026.
Their first Quarterly statement will be due on 5 August 2026.
After your compatible software is authorised, you need to send updates for each business income source to every 3 months. Your software will tell you when and how to send updates.
Example: If you had 2 different sole trade businesses and some rental properties, you would have to complete 4 separate Quarterly updates for each of the individual sole trade businesses and another 4 Quarterly updates for your property portfolio! The same applies to the EOPS. Only one Final Declaration is required.
Standard quarterly periods and deadlines
The quarterly submissions will be due on the 5th day of the month following the relevant quarter’s period end. Alternatively, if you have elected to use calendar-based quarters which end at the end of a month, then the deadline is a month and 5 days from the period end. The EOPS and Final Declaration are both due on 31 January following the tax year end, in line with the old tax return electronic filing deadline.
Quarterly period |
Quarterly deadline |
|
6 April to 5 July |
5 August |
|
6 July to 5 October |
5 November |
|
6 October to 5 January |
5 February |
|
6 January to 5 April |
5 May |
Who is exempt
Income exemptions
If your total combined income from self-employment and property is less than £50,000, you are currently exempt from MTD for ITSA until 2027 where the threshold becomes £30,000.
It is important to note that the threshold is based on your total sales, not your profit.
Digital exemptions
Entities/individuals can apply to be exempted from MTD if any of the following apply:
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It is not reasonably practicable for them to use digital tools to keep their business records or submit quarterly returns due to age, disability, remoteness of location or any other reason, often referred to as ‘digital exclusion’.
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They are subject to an insolvency procedure.
- The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.
Other exemptions
The following are also exempt:
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Non-resident companies.
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Trustees, executors and administrators.
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Foreign businesses of non-UK domiciled individuals.
Payment dates
There are no changes to your current payment dates. The payment dates, whether you are on interim payments on account or just 31st January payment deadline, will remain the same.
Quarterly Submission Information
You will need to provide HMRC with your total sales and total expenses for each business, along with the quarterly period’s start and end date.
If your total sales are likely to be over the VAT threshold (currently £85,000), even if you are not required to be VAT registered, then you will also need to submit a breakdown of certain set categories of sales and expenses depending on whether you are a sole trader or a landlord, and depending on the type of rental property you have.
End of Period Statement Information
The End of Period Statement, or EOPS, is submitted on 31 January following the tax year and is a way to finalise the income and expenses from your quarterly statements.
You are able to use it to make accounting adjustments for any disallowable items, and claim reliefs and allowances.
Penalties
A new system of points-based penalties is being introduced for all MTD submissions. This system consists of a combination of fixed rate and tax geared penalties.
For every submission deadline missed, you receive one point. The number of points required to generate a penalty varies depending upon the type of report [monthly; quarterly; annual]. Points get cleared after two years.
Penalties for late payment can be avoided if a ‘time to pay’ arrangement has been agreed with HMRC. There will also be an appeals procedure.
