HMRC's biggest tax overhaul in 29 years goes live on 6 April 2026, but 94% of affected businesses say they are not prepared. We break down who is affected, what has actually changed, and what to do if you have left it late.
Key takeaways
- Making Tax Digital for Income Tax is now mandatory from 6 April 2026 for sole traders and landlords earning over £50,000. The threshold drops to £30,000 in 2027 and £20,000 in 2028.
- 94% of affected businesses say they are not ready. Over 63% have not started preparing at all.
- You will need HMRC-compatible software to keep digital records and submit quarterly updates — paper records and basic spreadsheets on their own will no longer be accepted.
- Free and low-cost software options exist, but choosing the right one depends on how your business works. Getting this wrong creates more admin, not less.
- Even if you are below the £50,000 threshold now, the rules are coming for you. Starting digital record-keeping early is easier than scrambling to comply later.
The biggest change to the UK tax system in nearly three decades goes live this week. From 6 April 2026, Making Tax Digital for Income Tax replaces the annual self-assessment return with a system of quarterly digital reporting. If you are a sole trader or landlord earning over £50,000, this affects you right now.
The problem is that almost nobody is ready. A poll by Azets, a top-10 UK accountancy firm, found that 94% of affected businesses are either unprepared or only partially prepared. More than 63% had not started preparing at all. Separate research by Sage found that seven in ten sole traders are not ready, with a third still tracking income and expenses using pen and paper.
This is not a distant policy change. The clock has started.
What has actually changed
Until now, most sole traders and landlords filed a single self-assessment tax return once a year, typically in January. Many handed a bag of receipts to an accountant, who made sense of the year in one go.
That model is gone for those above the threshold. Under Making Tax Digital (MTD) for Income Tax, you must now keep digital records of all income and expenses throughout the year, submit quarterly updates to HMRC summarising those figures, and file a final year-end tax return by the following 31 January. That is five submissions per year instead of one.
The first quarterly update for the 2026/27 tax year covers 6 April to 5 July 2026 and is due by 7 August 2026. You cannot submit these updates through the HMRC website. You must use HMRC-compatible software.
Who is affected and when
The rollout is phased by income. From April 2026, sole traders and landlords with qualifying income above £50,000 must comply. The threshold drops to £30,000 from April 2027, and to £20,000 from April 2028.
Qualifying income means gross turnover from self-employment and property combined, not profit. A landlord earning £35,000 in rent and running a small consultancy bringing in £20,000 has a qualifying income of £55,000, even if their taxable income after expenses is much lower.
Partnerships are not included yet, though HMRC has confirmed they will be added later. Limited companies are also outside the scope of MTD for Income Tax, though they already deal with MTD for VAT if they are VAT-registered.
If HMRC determines from your most recent self-assessment that your qualifying income is above the threshold, they will write to you. But it is your responsibility to check, not theirs to chase. If you have not received a letter and think you might be in scope, use the HMRC checker tool to find out.
What you need to do
There are three things every affected business needs to sort out, roughly in this order.
Choose your software. HMRC maintains a list of recognised compatible software. The main options fall into two categories. Full accounting software like Xero, QuickBooks, or FreeAgent handles your bookkeeping, bank feeds, and HMRC submissions in one place. Prices range from around £7 to £36 per month. Bridging software like VitalTax or MyTaxDigital connects your existing spreadsheets to HMRC, which is cheaper but gives you fewer features. HMRC also offers a free basic tool for those with straightforward income, though it lacks bank feeds and automation. Pick what fits how you actually work, not what has the longest feature list.
Set up digital record-keeping. From 6 April, every transaction needs to be recorded digitally. If you currently use paper records or a basic spreadsheet that is not linked to HMRC-compatible software, you need to switch. Most cloud accounting platforms connect to your bank account and pull transactions in automatically, which means less manual work than the paper-based approach, not more. The transition itself is the hard part.
Sign up with HMRC. You need to register for Making Tax Digital for Income Tax through your Government Gateway account. If you already use MTD for VAT, you can use the same login, but you still need to sign up separately for Income Tax. Do this before your first quarterly submission is due.
Why this matters beyond compliance
The instinctive reaction to MTD is frustration. More admin, more deadlines, more software to learn. That reaction is understandable, and for many small businesses already stretched by rising costs and regulation, it is entirely fair.
But there is a practical upside worth acknowledging. Annual tax returns meant most sole traders had no clear picture of their finances for 11 months of the year. Many were caught off guard by a January tax bill that was larger than expected. Quarterly reporting forces a discipline that, once the initial setup is done, actually gives you a running view of where your business stands. Accountancy firms surveyed by Wolters Kluwer rated time savings and improved bookkeeping efficiency as the top two long-term benefits of MTD.
The businesses that will benefit most are those that treat this not as a box-ticking exercise, but as an opportunity to move from reactive record-keeping to something closer to real-time financial visibility.
What to do if you have left it late
If you are reading this and you have not started, you are not alone. But you do need to act this week. Here is a realistic path:
Pick one of the major cloud accounting packages. Xero, QuickBooks, and FreeAgent all support MTD for Income Tax and can be set up in an afternoon. Connect your business bank account so transactions flow in automatically. Categorise your income and expenses as they arrive. Sign up for MTD through HMRC. Submit your first quarterly update by 7 August 2026.
You do not need to have a perfect system by 6 April. You need to have a working one that captures your transactions digitally from that date forward. Perfection can come later.
If you have an accountant, talk to them now. They are likely dealing with hundreds of clients in the same position. The sooner you engage, the more capacity they will have to help you.
If you are below the threshold, start anyway
The £50,000 threshold is just phase one. Phase two drops to £30,000 in April 2027. Phase three drops to £20,000 in April 2028. If your income is anywhere near these levels, or if it is growing, the rules will reach you soon.
Starting digital record-keeping now, while it is still voluntary, means you learn the system at your own pace rather than under deadline pressure. It also means cleaner records when the time comes, and potentially a smoother relationship with your accountant.
How ReadyToday can help
This is the kind of practical technology transition we help businesses with at ReadyToday. Choosing the right software, setting it up properly, connecting it to your bank and your accountant, and making sure you understand how to use it without relying on us long-term. We work with sole traders, small businesses, and landlords across Dorset, Wiltshire, and the wider UK to get technology working for your business rather than adding to your workload.
If you are staring at the MTD deadline and not sure where to start, get in touch for a straightforward conversation about what you need. We will help you pick the right setup for your situation, get it running, and hand you the knowledge to manage it yourself going forward. No ongoing dependency, no inflated budgets.