The introduction of Making Tax Digital for Income Tax will impact sole traders and landlords from 2026 onwards. In this Insight, Chartered Tax Advisor Chloe Anderson highlights the challenges sole traders and landlords will face and explains why they need to prepare now.

Chloe Wilson | Drummond Laurie Chartered Accountants Scotland

Making Tax Digital July 2026 update: Key takeaways

  • Making Tax Digital for Income Tax will affect sole traders and landlords from April 2026, with mandatory compliance introduced in stages.
  • Most sole traders and landlords will need to replace paper records and spreadsheets with HMRC-approved accounting software and submit digital updates alongside a final annual declaration.
  • The transition to Making Tax Digital will increase administrative burden, software requirements and compliance risks, particularly for individuals managing multiple income sources or completing their own tax returns.
  • Missing reporting deadlines could result in financial penalties, making early preparation, accurate record-keeping and choosing the right software vital.

 

Making Tax Digital for sole traders and landlords

While businesses are already familiar with Making Tax Digital, new rules introduced by HMRC in April 2026 will affect sole traders and landlords. The launch of Making Tax Digital for Income Tax for these two groups represents the most significant tax reporting change since online tax returns were introduced in 2000.

The rules are being introduced in stages based on your total qualifying income from self-employment and/or property in the previous tax year:

  • From April 2026 for individuals with qualifying income over £50,000
  • From April 2027 for individuals with qualifying income over £30,000
  • From April 2028 for individuals with qualifying income over £20,000.

A critical point to note is that ‘qualifying income’ refers to your turnover – the total amount of money taken in – and not profit. Turnover dictates when you make the transition to Making Tax Digital for Income Tax.

 

What changes will Making Tax Digital introduce for sole traders and landlords?

The introduction of Making Tax Digital for Income Tax will mean many long-established habits will need to change and fast. For the majority of sole traders and landlords, the biggest changes to financial record-keeping and reporting will be:

  • Switching from paper records to digital: No more crumpled receipts stored in boxes.
  • Swapping spreadsheets for specialist software: MTD requires sole traders and landlords to use HMRC-approved accounting software to record and report their financial information.
  • Annual reporting makes way for quarterly updates: Instead of submitting your financial records once a year, HMRC will require quarterly updates as well as a final income tax return. It is important to note that tax liabilities will not, however, need to be paid quarterly.
  • Additional costs: The shift to MTD might incur additional costs for software subscriptions, bookkeeping or accountancy fees, and training on new MTD-compatible software.
From 2026 onwards, sole traders and landlords in Scotland will need to use HMRC-approved accounting software to record and report their financial information.

From 2026 onwards, sole traders and landlords in Scotland will need to use HMRC-approved accounting software to record and report their financial information.

Worried about the transition to MTD and not sure where to start? Make a call Drummond Laurie Chartered Accountants your starting point and let us support you through the transition to Making Tax Digital.

 

What challenges will sole traders and landlords face with Making Tax Digital?

Making Tax Digital for Income Tax will present several new challenges for landlords and sole traders. Specifically:

  • Risk: Individuals now face a greater risk of missing submission dates due to the increased number of reporting deadlines
  • Administrative burden: MTD will create an additional administrative burden, particularly for sole traders and landlords who historically have not used an accountant or bookkeeper
  • Software choice and costs: Sole traders now face the challenge of selecting the correct HMRC-approved accounting software for their needs, as well as learning how to use it properly and covering any additional costs for subscriptions and training
  • Knowledge and understanding: For those who want to continue with a ‘do-it-yourself’ approach, they will need to have a greater understanding of issues like allowable expenses, capital purchases, home office costs, multiple property income and the like
  • Added complexity: Multiple income sources will add further complexity. For example, managing financial records across several rental properties could be more complex, time-consuming, and costly than it has in the past.

Making Tax Digital doesn’t need to be taxing. Contact the team at Drummond Laurie Chartered Accountants and hear how we can make your transition to digital tax reporting simple.

 

As a sole trader, when do I need to start reporting for Making Tax Digital?

If you are a sole trader or landlord impacted by Making Tax Digital from April 2026, the reporting deadlines for this tax year (2026/27) are:

  • Quarter ending 30 June (or 5 July): Submission due by 7 August
  • Quarter ending 30 September (or 5 October): Submission due by 7 November
  • Quarter ending 31 December (or 5 January): Submission due by 7 February
  • Quarter ending 31 March (or 5th April): Submission due by 7 May.

Late submission of quarterly reports will incur financial penalties using a new points-based system. This will, however, only apply from the 2027/28 tax year onwards as HMRC will not apply any late submission penalties for the 2026/27 tax year.

 

Making sense of Making Tax Digital for sole traders and landlords

As chartered accountants who support sole traders and landlords across Scotland, Drummond Laurie understands how daunting these changes will seem. We are here to help individuals make a smooth transition to Making Tax Digital with expert guidance and ongoing assistance.

For an initial discussion, get in touch with Chloe Anderson.

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About the Author

Chloe Anderson qualified as a Chartered Accountant with the Institute of Chartered Accountants of Scotland (ICAS) in 2021 and subsequently qualified as a Chartered Tax Advisor with the Chartered Institute of Taxation in 2024.

Connect with Chloe on LinkedIn.