Huge HMRC rule change set to impact 1.7 million Brits (Image: Getty)
A new tax shake-up is set to impact hundreds of thousands of landlords and sole traders next year, experts have warned. From April 6, 2026, anyone earning over £50,000 from self-employment or property income must comply with Making Tax Digital (MTD) for Income Tax, moving to digital record-keeping and quarterly submissions.
The first wave will affect around 780,000 people, with a further 970,000 joining from April 2027, and more expansion is planned for 2028. Those earning between £30,000 and £50,000 will be brought in next, and from 2028 the threshold will drop to £20,000. Importantly, the threshold is based on gross income, not profits. Andy Wood, international tax expert at Tax Natives, said: “Many people assume these thresholds apply to their net income after tax relief, but that’s not the case. It’s based on total income before deductions, so the scope is broader than some might expect.”
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Planning is "crucial" to avoid getting caught out, an expert has warned. (Image: Getty)
He added: “This is the biggest change to personal tax reporting since Self Assessment was introduced. 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.”
Eligible individuals must keep digital records, use compatible software, and submit updates every quarter.
Mr Wood said: “It’s not just about moving tax online – it’s about shifting to real-time reporting. That means landlords and sole traders will need to adjust how they manage their finances throughout the year, not just at tax return time.”
HMRC said the move aims to improve accuracy, reduce errors, and save time. However, experts warn that not everyone will find the transition easy.
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Mr Wood said: “There are benefits to this system – especially for those already using cloud accounting software. But for many smaller landlords or sole traders, this could mean new costs, new software, and a steep learning curve. Planning ahead is crucial.”
Early adopters are being encouraged to join HMRC’s MTD testing programme. Mr Wood said: “Signing up early is wise. 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.”
MTD for VAT was rolled out previously, and reportedly helped over two million businesses reduce errors and increase efficiency. A 2021 report found that 69% of businesses saw at least one advantage, and 67% reported fewer record-keeping errors.
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Mr Wood said: “There’s definitely potential for long-term savings and greater accuracy. But the key to unlocking those benefits lies in how well taxpayers adapt to the new systems. A proactive approach will be vital.”
He added: “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.”
An HMRC spokesperson said: “Making Tax Digital will modernise tax processes and support customers’ productivity, making it easier to stay on top of their affairs, reducing errors and further closing the tax gap.”
“We’ve worked extensively with customers, representative bodies and software developers to ensure MTD works well for small businesses and landlords and that they are prepared for the change.”
