Over 850,000 Brits have just 2 months to sign up for a new tax system – or face £200 fines
With just two months until the 6 April deadline, over 850,000 unincorporated sole traders and landlords earning £50,000+ combined must register for HMRC’s Making Tax Digital (MTD) for Income Tax.
This major shift requires quarterly digital submissions of income and expenses, replacing annual self-assessments for those in scope, says professional services firm BDO.
Under the new rules, taxpayers will be required to supply records to HMRC of self-employment and property income and expenses on a quarterly basis. However, they will still only need to pay tax owed once or twice a year, as per current arrangements.
The deadlines for quarterly submissions are 7 August, November, February, and May. There is a requirement to submit a final tax declaration by 31 January following the end of the tax year. At that point, any adjustments can be made to their tax records. This final tax declaration will replace the current annual self-assessment tax return for those in scope.
According to HMRC’s latest data, more than 850,000 people will be required to join Making Tax Digital for Income Tax this April. Taxpayers with a qualifying income of £30,000 or more will be in scope from April 2027, and those earning £20,000 or more will be required to join from April 2028.
By the time it’s fully rolled out in 2028, almost three million people will have to report quarterly through Making Tax Digital for Income Tax. HMRC does not provide software, and taxpayers will only be allowed to submit tax information to HMRC using one of their compatible and approved software packages.
HMRC will use a points system for those who don’t comply with the new regime. Once a certain number of points have been applied to an account, taxpayers will receive an automatic fine of £200. Points will be given for late payments as well as late submissions. Any points accrued will be valid for two years and will then be removed from accounts.
If a fine is imposed, HMRC requires a 12-month period of full compliance before the points are removed. There will also be a one-off fine given to those who fail to use compatible software to file their returns. It’s expected that penalty points will not be applied by HMRC for late quarterly updates for the first 12 months of Making Tax Digital.
Taxpayers may be able to apply for a digital exemption if they believe they are digitally excluded.
“Many landlords and the self-employed may be blissfully unaware that they are in scope for Making Tax Digital and will need to act now to comply with the new rules. HMRC will be writing to those it believes are in scope, but individuals should obtain their own advice to ensure they are ready for the changes,” said Elsa Littlewood, Tax Partner at BDO.
“While it’s those with earnings of £50,000 or more who need to take action first, it’s important to remember that the threshold is falling. All unincorporated sole traders and landlords whose combined turnover is more than £30,000 will be required to comply with the changes from April 2027, falling to £20,000 from April 2028.
“This is a big change for taxpayers, and the transition is likely to be difficult for some. However, there is lots of help and support available on the GOV.UK website, including who is required to register and what is required. It’s also easy to check registration requirements through HMRC’s checker tool.”
Why it matters now
- Who is affected first? Sole traders and landlords with £50,000+ turnover from 2024/25 returns. Threshold drops to £30,000 in 2027 and £20,000 in 2028, impacting nearly 3 million by full rollout.
- Key Changes: Submit records quarterly (deadlines: Aug 7, Nov 7, Feb 7, May 7) via approved software – no HMRC-provided tools. Final declaration due Jan 31 post-tax year.
- Penalties to watch: A points-based system for late filings/payments leads to £200 fines. One-off penalty for non-compatible software. Grace period: No points for late quarterlies in the first year.
Actionable steps to prepare
- Check eligibility: Use HMRC’s online checker to confirm if you’re in scope.
- Register ASAP: Sign up by April 6, 2026, if qualifying.
- Choose software: Select from GOV.UK’s approved list for seamless submissions.
- Seek exemption if needed: Apply if digitally excluded.
- Get advice: Consult a tax expert like BDO for personalized guidance.
