With less than four months to go until the Making Tax Digital system is rolled out on 6 April 2026, time is running out for sole traders and landlords to get everything in place to ensure their tax process is compliant to the new requirements to avoid future penalties.

What is Making Tax Digital (MTD)?

Making Tax Digital (MTD) is a UK Government programme, run by HMRC, designed to update the tax system by introducing mandatory digital recordkeeping and online filing through compatible software. Its aim is to cut down on mistakes, simplify the submission process, and make managing tax more straightforward for both individuals and businesses. MTD is being introduced for sole traders and landlords whose combined annual taxable income from self-employment and/or property exceeds specific thresholds. You can find more about the upcoming income thresholds on the Government website, here: https://www.gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax.

When is the deadline?

MTD for income tax comes into effect on 6 April 2026 for sole traders and landlords with a gross income over £50,000, in April 2027 for those over £30,000, and in April 2028 for those over £20,000. However, you can also sign up voluntarily now to get ahead of the new requirements.

If you are above the £50,000 gross income threshold, you must sign up now.  You can do this yourself at https://www.gov.uk/guidance/use-making-tax-digital-for-income-tax/signing-up or via your accountant.

Why do you need to act now?

Even though MTD doesn’t start until April 2026, it’s strongly advisable to act now as the practical changes are big and require your time input and management.  Acting now avoids stress, errors and costs in the coming months.

The new MTD system requires the use of accounting software compatible with the software used by HMRC, as well as accurately kept digital records and quarterly submission deadlines.  This requires your time to select the best available software to meet your needs and to get the entire new system set up within your business, so you are familiar with the processes ahead of the first deadlines to avoid any potential fines.

What are the penalties for late or non-compliance?

Penalties will apply if you miss deadlines for submitting your tax return and paying your tax bill. Other penalties can also apply, for example fines up to £3,000 for failing to maintain adequate records in relation to a tax return, or for inaccurate record keeping or deliberate withholding of information.

Under the new MTD system, a new points-based penalty system will apply, whereby taxpayers will receive 1 point for each late submission made.  This means you will not face financial penalties if you make a one-off mistake by submitting a quarterly update or tax return late, however repeated missed deadlines will accumulate points.  The threshold for quarterly returns is 4 points, after which time a £200 fine will apply, and a further £200 penalty will apply for each further late submission until a period of compliance is completed and resets your point score.

For late tax payments, where you owe HMRC money and pay it late, penalties will be more severe than under the current system.

• Up to 15 days late – no penalty will apply
• 16-30 days late – the penalty charge will be 3% of the tax owed at day 15
• 31+ days late – a charge will apply of 3% of what was outstanding at day 15, plus 3% of what remains outstanding at day 30; then 10% per year (charged daily) on the outstanding balance until paid in full.

More information about the penalties applied by HMRC can be found here: https://www.gov.uk/guidance/penalties-for-income-tax-self-assessment-volunteers

How can a Virtual Finance Function assist with MTD?

A Virtual Finance Function (VFF) is an outsourced or partially outsourced finance service that provides support to businesses with financial activities including bookkeeping, management accounts, financial reporting, cash flow forecastingand strategic financial insights.

We offer a VFF service which brings many benefits, including assistance to comply with new requirements such as MTD.  VFFs utilise modern software which ensures efficiency and accuracy of financial data processing, reducing errors and meeting regulatory compliance requirements.  Our highly specialised experts are also on hand to offer support, assistance and insights to ensure your business is meeting regulatory requirements whilst allowing you time to focus on strategic goals and business growth.

Don’t delay, act now!

Although this new criteria appears daunting it’s strongly advisable to act now to avoid stress, errors and costs in the coming months.  Ignoring the new requirements by not having digital records and not having compatible accounting software is risky and will subject you to regulatory enforcement and financial penalties.

Find out more

Feeling overwhelmed by the requirements and deadlines for Making Tax Digital?  Reach out to our team for more information and assistance at: mail@mmgca.co.uk. You can also visit us in branch – see our office locations on our contact page.