One of the biggest shake-ups in the UK tax landscape is now well underway – the introduction of Making Tax Digital (MTD) for Income Tax Self Assessment. While the first phase has already began, the next major phase comes in April 2027.
If you were someone who avoided the rollout this year, it may well be that you fall within its scope next year as HMRC lowers the thresholds to include many more sole traders and landlords. With this in mind, now is the time to understand what “MTD ready” really means and how you can make yourself MTD ready before the 2027 deadline arrives.
From April 2027, HMRC will require individuals with qualifying income over £30,000 (from self-employment and/or property income) to comply with MTD rules. This follows the first rollout phase in April 2026 for those earning over £50,000.
Under MTD for Income Tax, those affected must:
- Keep digital records of income and expenses
- Use HMRC-approved software to keep these records
- Submit quarterly updates to HMRC
- Submit a final end-of-year declaration to HMRC
Being MTD ready has many avenues; from choosing the right type of software to properly managing your finances throughout the year. Here we will cover what being MTD ready really looks like.
If your van’s dashboard is currently full of paper receipts and you’re entering your fourth year of keeping manual spreadsheets, then it is worth noting that these will no longer be sufficient on their own. You will need to keep and maintain digital:
- Income records (sales, rent, invoices)
- Expense tracking
- Categorised transactions
The key requirement is that records are maintained in a digital format that is compatible with HMRC systems.
You will need to be set up on and actively using MTD-compatible software that can:
- Record transactions digitally
- Categorise income and expenses
- Submit quarterly updates directly to HMRC
It is worth noting that you do have the option of using bridging software if you prefer to keep existing software whilst still being able to meet MTD requirements.
A significant change is now the need to submit four quarterly updates per year, plus a final declaration, instead of one annual submission that was previously required.
The positives of this change include less panic at year-end and being aware of your finances throughout the year rather than looking at them retrospectively. The downsides of this change mean a lot more admin work required throughout the year and the obligation to file updates four times a year.
We are currently in the first rollout phase of MTD. From April 2027, MTD will become mainstream for many sole traders and landlords.
By this stage, MTD will stop being something “new” and become the default way of reporting income. In other words, HMRC enforcement and penalties are likely to be more actively applied after the transition support period ends
The biggest challenge facing sole traders and landlords isn’t a “digital transition” – it is really the operational change that is required. Start preparing now to ensure you and your business is ready to:
- Move from annual to quarterly reporting
- Learn and use new accounting software
- Free up capacity to keep up with more frequent bookkeeping requirements.
Getting prepared now can significantly reduce disruption to your business when the rules become mandatory next year.
- Reviewing your total qualifying income (self-employment + property) – are you within the threshold?
- Choosing MTD-compatible software early – are you satisfied with your chosen software? Changing can be costly and disruptive.
- Digitising your bookkeeping processes – habit building around digital record keeping now will pay off massively by April 2027.
- Opening a separate business bank account if you don’t already have one – this helps to simplify compliance and reduce recording errors.
Many businesses are already testing MTD systems voluntarily, which helps reduce stress when the rules become mandatory.
While the new MTD requirements introduce new administrative requirements, it also offers an opportunity to modernise bookkeeping, improve financial visibility, and reduce year-end pressure.
At Palm Accountancy we’re already helping sole traders and landlords prepare for the upcoming MTD changes well ahead of the April 2027 deadline.
Whether you’re unsure about your eligibility, need help choosing the right software, or want to take the stress out of quarterly reporting, we can support you every step of the way.
Those who prepare early will find the transition significantly smoother than those who leave it until the last moment.
