Landlords and sole traders face a looming financial hurdle as a tax revolution – set to ensnare the unprepared – kicks in, warns an industry expert. The self-employed and property income earners must gear up for an impending radical change in reporting earnings to HMRC.

From the beginning of April 2026, those pocketing more than £50,000 from self-employment or property must engage with Making Tax Digital (MTD) for Income Tax – moving to digital logs and quarterly reports. This dramatic shift is slated to impact around 780,000 individuals initially, with a further 970,000 joining from April 2027 and subsequent expansion in 2028.

The initial wave will hit sole traders and landlords whose gross income tips more than £50,000. Those bringing in between £30,000 and £50,000 are set to join in April 2027, with earnings threshold extending to those with £20,000 or more from 2028.

Critically, the benchmarks triggering compliance rely on gross, not net, income – indicating that even people with modest take-home pay post-expenses might fall under the new system.

“Many people assume these thresholds apply to their net income after tax relief, but that’s not the case,” cautions Andy Wood, International Tax Advisor at Tax Natives, adding a critical clarification about the rule’s reach: “It’s based on total income before deductions, so the scope is broader than some might expect.

“This is the biggest change to personal tax reporting since Self Assessment was introduced (in 1995/96). While MTD aims to streamline the process, it also places a much greater administrative burden on individuals who may not be set up for quarterly reporting.”

What is ‘Making Tax Digital’ for Income Tax?

The system will require eligible individuals to:

• Keep digital records of their income and expenses
• Use compatible software to manage their tax affairs
• Submit updates to HMRC every quarter

“It’s not just about moving tax online – it’s about shifting to real-time reporting,” Mr Wood explained. “That means landlords and sole traders will need to adjust how they manage their finances throughout the year, not just at tax return time.”

Why is this happening?

According to HMRC, the change is designed to improve accuracy, reduce errors and save time. It believes the digital transition will help taxpayers stay on top of their obligations while offering a clearer picture of their tax position year-round.

But Andy cautioned that not all taxpayers will find the transition easy.

“There are benefits to this system – especially for those already using cloud accounting software,” said Mr Wood. “But for many smaller landlords or sole traders, this could mean new costs, new software, and a steep learning curve. Planning ahead is crucial.”

Should I sign up early?

HMRC is currently encouraging early adopters to join the MTD testing programme, giving them time to familiarise themselves with the new system and access dedicated support.

“Signing up early is wise,” advised Mr Wood. “It allows you to test-drive the system, work out any teething issues, and avoid a last-minute scramble in 2026. Taxpayers who prepare in advance will be in a far better position when the deadline hits.”

Will this reduce errors and save time?

With MTD for VAT, which was previously rolled out, over two million businesses have reportedly seen benefits such as reduced errors and increased efficiency. A 2021 report showed that 69% of businesses experienced at least one benefit, while 67% observed a reduction in record-keeping mistakes.

“There’s definitely potential for long-term savings and greater accuracy,” commented Mr Wood. However, he stressed that realising these advantages depends significantly on how effectively taxpayers adjust to the new systems, emphasising the importance of being proactive.

Mr Wood warned: “Making Tax Digital is coming – and for many, it’s coming sooner than they realise. Now is the time to speak with an accountant or tax adviser, get the right software in place, and understand how this affects your personal circumstances. The cost of doing nothing could be high, both financially and in terms of compliance.”