Step 1: Who will need to comply with MTD from 6 April 2026?

Only self-employed individuals (sole-traders) and landlords currently registered for self assessment, and who received more than £50,000 of combined qualifying income from either self-employment or property income, or both, in the tax year ended 5 April 2025 will need to begin reporting under MTD from April 2026.

New sole-traders and landlords who register for self assessment for the first time in the tax year beginning 6 April 2026, will not be assessed by the HMRC for MTD purposes until after they file their first return. As their first tax return will not need to be filed until 31 January 2028, the earliest they may need to comply with MTD would be April 2028.

Qualifying Income: Includes the combined gross income from all self-employment and property sources before any tax allowance or expenses are deducted. It does not include income from employment (PAYE), a partnership, or dividends (including those from your own company).

Phased introduction : In future, the HMRC will apply a lower threshold to determine when relevant taxpayers must report under MTD. Sole-traders and landlords with qualifying incomes over £30,000 must start reporting under MTD from 6 April 2027. The threshold will decrease to £20,000 from April 2028, and remain at that level moving forward. So, in future years the HMRC will advise relevant taxpayers if they need to adopt MTD for the coming tax year based on the returns made for the previous year.

The HMRC are advocating early adoption of MTD. Some clients will certainly benefit from streamlining the recording and reporting of income and expenditure as they go, to give them management accounting information they can use to better manage their business and tax affairs. It will also avoid the stress of having to pull together the accounting records at the year end for your accountant to process. We will be pleased to discuss the pros and cons of early MTD adoption with you. It will make little difference to the amount of tax you will pay at the end of the day, but the journey you will take to get to the same point will prove a whole lot easier if you embrace MTD.

What does MTD reporting involve?

The first significant point to note is the HMRC require the MTD taxpayer to file regular online reports using only HMRC-approved software. We explain more about the software choices you can make below.

The taxpayer must send update reports for each self-employment and property income source to the HMRC at least every 3-months. The option exists to make reports more frequently, for example monthly or weekly. We doubt many people will exercise the option to report more frequently than the default quarterly returns.

The use of the term update is important. Each submission filed with the HMRC report made during the tax year will report the year-to-date position. So, the most common choice of reporting each tax year will adhere to the following pattern using the standard fiscal quarters:

The HMRC will also accept quarterly reporting on a calendar month basis as follows:

After the 7 May, the HMRC will use the MTD information provided to prepopulate your personal self assessment and make it available through your chosen MTD software. You will then have until the next 31 January to add the other information about earned and investment income, claim allowances and make any necessary elections to complete your return and file it as in earlier years.

3. Recognising that MTD will require a higher standard of accounting by taxpayers in future.

By virtue of the fact that most sole-traders and landlords mandated to begin MTD reporting in April 26 have incomes exceeding £50,000, it is anticipated they will already be exercising an acceptable level of due diligence in recording and processing their income and expenditure. This is certainly the case with existing clients of this firm.

We have concerns that smaller clients with little or no previous book-keeping experience, will find MTD quite a challenge and a severe culture shock. The days of stuffing receipts into a bag and handing them over to an accountant at the year end to process your accounts are well and truly over. We suggest that in order to comply with MTD, for each source of income, you should:

• Maintain a sales invoice (business) or rental demand day book to record the raising of sales invoices or rental demands respectively; recording the names, addresses and dates of each client or tenant, and link each one to the receipt of cash or a bank transfer to settle the debt due.
• Maintain separate business bank accounts for each source of income, ensuring that only relevant business transactions are recorded, to the exclusion of all private ones.
• Maintain a purchase day book that records each business expense and how they were paid for, including a way of tracing back each transaction to a copy (electronic or hard copy) of a valid supplier invoice or receipt.
• If you claim travel and/or motor expenses, you must keep detailed journey histories of all business journeys and private use of vehicles to allow apportionment of business to private use.
• If you engage other people to assist you in running your enterprise, you must only pay them in accordance with their legal employment status, which will probably mean operating a PAYE scheme.

The HMRC require that the taxpayer must prepare quarterly reports for each of the following:

• Separate MTD reports for each self-employed income. So, by way of example, an individual with several different self-employed businesses would need to produce a separate report for their:
• Income derived from being an electrician;
• Income derived from being a part-time driving instructor; and
• Income from being a martial arts instructor.
• A single, aggregated MTD report for all their UK property income and expenditure.
• A single, aggregated MTD report for all their overseas property income and expenditure.

The need to record and process separate streams of income and expenditure will require extra care, but it is what is required and we will be pleased to help you comply.

4. Choosing the right HMRC-Approved Software for your needs.

You can explore what the HMRC have to say on about choosing from their approved list of MTD software here.

The approved software houses are inevitably going to increase their level of advertising to court your business between now and April 2026. To be fair, the available accounting software has come a long way in the last 10 years, For certain users, the right choice of MTD software will afford them significantly improved management control over their business and tax affairs. We anticipate many new MTD software users will regret not making the switch years ago.

On the other hand, some MTD taxpayers will be tempted to invest in new accounting software they don't need and will probably never use. Many accountants, including this firm, already use bridging software that can fulfill a client's MTD reporting obligations without them having to invest in expensive software themselves. It won't be the right solution for everyone, but it is an available choice that should be considered.

Talking to us can save you wasting a great deal of your time and money. We of course want your business, but if we recommend you should subscribe to a particular MTD software product, it will be because we believe it will the right solution for you … based on a sound assessment of your situation. We also never accept any commissions or incentives to make that recommendation.