Making Tax Digital (MTD) made simple for sole-traders and Landlords

A practical guide to Making Tax digital (MTD) simple for Self-employed (sole-trader) and landlord taxpayers

This guide is a summary of the key points sole-traders and landlords need to know about Making Tax Digital (MTD) for Income Tax.

Disclaimer: Although every effort is made to ensure the information and guidance published here is correct, we give notice that no person can rely upon the advice or guidance published in this guide. The specific circumstances a person may find themselves in might require a different approach to the generalised advice published here. For this reason, anyone relying upon the information and guidance published here does so entirely at their own risk, and they cannot hold the publishers or the authors of this guide responsible or liable for any losses, costs, or damages they suffer as a result.

Index

Chapter 1.	The taxpayers who must comply with MTD.
Chapter 2.	Why has HMRC introduced MTD for sole-traders and landlords?
Chapter 3.	Are there any exemptions for the need to comply with MTD?
Chapter 4.	What changes must I make to comply with MTD?
Chapter 5.	What extra accounting records must I keep under MTD?
Chapter 6.	What are the MTD 'categories' to be reported in the MTD return?

1. The taxpayers who must comply with MTD

They will be taxpayers already registered with HMRC for Self Assessment, and who are:

Sole-traders: Who earn an income through operating a UK business on their own account (self-employed).
UK-property landlords: Who hold an interest (owner) or part-interest (joint-owner) in one or more UK properties from which income is received.
Overseas-property landlords: Who hold an interest (owner) or part-interest (joint-owner) in one or more overseas properties from which income is received.

… and whose total qualifying income derived from any, or a combination of all three regulated sources, exceed specified thresholds reported in a previous tax year.

Qualifying Income includes the combined gross income from all self-employment and property (UK and overseas) before any tax allowance or expenses are deducted. It does not include income from employment (PAYE), partnerships, or dividends received. Only the apportioned share of gross income from each jointly-owned property is taken into account in determining an individual's qualifying income.

Based on the level of qualifying income reported in the previous year's tax return, HMRC will issue a notice to the sole-traders and landlords they require to begin reporting under MTD. There will be a phased introduction as follows:

Phase 1: Self-employed and landlords with qualifying incomes above £50,000 reported in their 2024-25 tax returns should have began complying with MTD from 6 April 2026.

Phase 2: Sole-employed and landlords with qualifying incomes above £30,000 to be reported in their 2025-26 tax returns will begin complying with MTD from 6 April 2027.

Phase 3: Sole-employed and landlords with qualifying incomes above £20,000 to be reported in their 2026-27 tax returns will begin complying with MTD from 6 April 2028.

Meeting your MTD-reporting obligations is straightforward provided you plan ahead. Failing to plan ahead will cost you more.

MTD is a relatively straightforward tax reporting system to comply with in practice, but the length of this guide reflects the complexity of what is involved.

If you have engaged a competent adviser like MAAP to guide you through your MTD journey, then the need for you to gain an in depth understanding of what MTD-compliance looks like is much reduced. You can rely upon your adviser to tell you what to do and when, and they will shoulder the responsibility ensuring you comply with your new MTD-reporting obligations.

Even so, it is always wise to gain at least a general idea of what is involved, and it this guide strives to make it possible to make a complex system simpler to understand by breaking it down into smaller sections that can be more easily assimilated and understood one step at a time. It does not take long to build a broader understanding of what MTD is all about this way.

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2. Why has HMRC introduced MTD for sole-traders and landlords?

MTD is an essential part of HMRC's plan to create a modern, fairer and more cost-effective tax system for its customers. It will improve the efficiency with which HMRC collects and processes taxpayers' information to determine what tax they should pay. MTD will also channel sole-traders and landlords into keeping proper accounts (Chapter 5).

HMRC's other MTD goal is to close the tax gap, which will work in favour of honest taxpayers … obviously less so for those who are not.

HMRC estimates the tax gap for 2024-25 was £59.2 billion. It reflects the difference between what tax was expected to be collected for that tax year, and what was actually received by the Treasury. To put some perspective on the magnitude of the tax collection shortfall, the UK spent £62 billion on UK National Defence. The NHS budget for 2025-26 was set at £208 billion.

Low-earning, self-employed taxpayers are often seen as less likely to comply with tax rules and pay the correct amount of tax. Whether or not that is true, MTD will force more accurate reporting of income and expenditure by requiring transaction-level digital records from the outset. Unlike the previous SA100 return, completed up to 10 months after year-end with little expectation of future HMRC scrutiny of the summarised income and expenditure recorded therein, MTD-approved software creates records that HMRC can readily audit where tax evasion or avoidance is suspected. HMRC has cleverly moved the goal posts and leveled the field by introducing MTD. Just the threat of HMRC being able to audit the digital historical accounting records for the last five years, is enough to ensure taxpayers will be more circumspect in what they include in future MTD-returns.

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3. Are there any exemptions for the need to comply with MTD?

HMRC has published guidance on the available exemptions for certain taxpayers to avoid or delay having to comply with MTD.

The stated exemptions include:

Sole-traders and landlords with total qualifying income of less than £20,000.
A taxpayer who has not yet been issued with a National Insurance number before the start of the tax year enjoy a temporary postponement of the date they must comply with MTD.
Partnerships are currently exempt.
Non-resident companies submitting an SA700.
Trusts submitting an SA900.
Taxpayers are automatically exempt of the included any of the following information in their 2024-25 tax return:

the SA103L supplementary page as a Lloyd's member in relation to your underwriting business.
that you are not physically or mentally capable of providing information to HMRC and have either:

given power of attorney to someone in the UK to act on your behalf and it is currently in place, or
a legally appointed deputy, controller or guardian in place.

We recommend those intending to take advantage of an exemption confirm with HMRC they are entitled to rely upon it well before the date they would otherwise need to comply with MTD-reporting.

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4. What changes must I make to comply with MTD?

Although complying with MTD will not change when and the amount of tax you pay, it will require you to make significant changes to how and when you go about recording and reporting your tax affairs to HMRC.

The changes can be summarised as follows:

You will no longer be required to submit a SA100 tax return by 31 January following the end of the relevant tax year.
You will now be required to prepare and submit 4 quarterly MTD-returns in the tax year to which they relate.
The quarterly updates must record your year-to-date income and expenditure.
Only HMRC-approved software can be used prepare the required MTD records and file the four quarterly returns. Either the taxpayer or their agent can subscribe and operate the required software.
If you are sole-trader, you must separately record your qualifying income and expenditure for each separate source of self-employed income.
If you are the owner, or joint-owner of UK property, MTD requires you prepare and report a consolidated summary of your income and expenditure each quarter. This does not remove the obligation to keep separate records for each property.
If you are the owner, or joint-owner of overseas property, MTD requires you to prepare and report a consolidated summary of your income and expenditure each quarter.
After the end of the tax year, HMRC will post a pre-populated tax return summarising the information submitted by the quarterly returns. This return can be viewed by HMRC-approved software, and affords the taxpayer, or their agent, the opportunity to amend the qualifying income and expenditure, add other kinds of taxable income and expenditure, and make elections before finalising and approving the tax return before the following 31 January to determine the final tax liability for that tax year.
You must take extra care to ensure you retain your MTD digital records with an intact audit trail back to the relevant paperwork for up to five years.

Our experience of helping our Phase 1 clients comply with MTD from this April, is that the transition went much more smoothly than expected. The clients are now firmly established in the routine of making their quarterly MTD-returns, and feel that the significant changes they had to make in preparation to comply with MTD earlier this year were disruptive and more expensive than they might have wished, but the payback is they do feel in more control of the tax reporting affairs as they are now preparing their tax return as they go, instead of a mad rush to pull it altogether and get it done after the event.

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5. What extra accounting records must I keep under MTD?

The HMRC's Compliance Handbook CH1020 require taxpayers to prepare proper accounting records that are sufficiently detailed to support an accurate tax return and permit HMRC to verify the figures reported. All expenditure claimed against taxable income must be wholly and exclusively for the purposes of carrying on the business (HMRC: BIM37007).

The requirement to keep proper accounting records has existed for decades. MTD does not diminish the responsibility of the taxpayer to organise the way they keep their accounting records to allow HMRC to trace back to individual copies of invoices and receipts transactions that make up the consolidated and summarised amounts reported in the tax return.

What has changed, is a significant increase in the risk HMRC may ask MTD-taxpayers to produce copies of invoices and expenditure in future. As MTD-records must be retained for HMRC inspection for at least five years from the 31 January filing deadline to which they relate, taxpayers need to be far more careful about how they preserve and protect those records just in case they are needed.

Taken in isolation, the MTD regulations only require the following specific information about each transaction to be digitally recorded and retained in the HMRC-approved software that must be used:

The date of the transaction.
The amount of each transaction.
The category to which each transaction must be allocated and reported within the submitted MTD-return. Categories are explained in Chapter 6.

The requirement to record these three parameters for MTD return purposes, does not remove the need to record additional information required by other regulations, two of which have already been mentioned above.

If you are a sole-trader, a landlord, or indeed both, you must record and report details of all the individual qualifying income and expenditure transactions from the following separate sources each tax year to comply with MTD:

As a sole-trader you must keep separate records for each self-employed activity you undertake. For example, if you are an electrician by day, and a musician and martial arts teacher by night, you must record and report three separate MTD returns every quarter for each trade.
If you are a landlord with one or more UK properties, MTD requires all of the income and expenditure derived from all UK properties to be reported digitally in aggregate as effectively one UK property rental income business.
- It is important to understand that although HMRC's MTD guidance specifically indicates there is no need to keep separate records if you have more than one UK property, there are other considerations that do require keeping separate records of income and expenditure by source. These are:
- Notwithstanding the statutory precedents mentioned above, there is logical reason for keeping separate records of income and expenditure by property simply because it allows the owner to better manage and make more informed decisions about how to maximise their return-on-investment from each property.
If you are a landlord with overseas properties, to comply with MTD you are required to keep separate records of income and expenditure for each overseas properties in digital format, even though the MTD quarterly returns submitted to HMRC report the income and expenditure in aggregate.

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6. What are the MTD 'categories' to be reported in the MTD return?

The analysis of different categories of MTD reporting listed below, are taken from HMRC Notice: Making Tax Digital for Income Tax: Quarterly update direction (updated 20 March 2026).

The reporting categories prescribed for sole-traders:

Income:	Expenses
Turnover	Cost of goods bought for resale or goods used
Other business income	Construction industry - payments to subcontractors
	Wages, salaries, and other staff costs
	Car, van, and travel expenses
	Rent, rates, power, and insurance
	Repairs and maintenance of property and equipment
	Phone, fax, stationery, and other office expenses
	Advertising
	Business entertainment costs
	Interest on bank and other loans
	Bank, credit card, and other financial charges
	Accountancy, legal, and other professional fees
	Other business expenses

The prescribed reporting categories for UK landlords:

Income:	Expenses
Total rent	Rent, rates, insurance, and ground rent
Other property income	Property repairs and maintenance
Premiums for granting a lease	Non-residential property finance costs
Reverse premiums and inducements	Residential property finance costs
	Residential finance costs brought forward
	Legal, management, and other professional fees
	Cost of services provided, including wages
	Travel expenses
	Other allowable property expenses

The prescribed reporting categories for foreign (overseas) landlords:

Income:	Expenses
Total rent and other receipts	Allowable property expenses (rent, repairs, legal fees, costs of services provided)
Premiums for granting a lease	-

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