As HMRC’s new accounting system for Income Tax approaches the first anniversary of its full implementation, the demand for Making Tax Digital-ready software is growing for sole traders and landlords.
Sole traders and landlords with qualifying income over £50,000 will have been required to follow the MTI for Income Tax from 6 April 2026 (unless they are exempt). HMRC estimates that there are approximately 864,000 people in this first group. Their first quarterly update deadline was 7 August 2026.
“For those affected, choosing suitable accounting software is no longer simply about convenience. It is now part of meeting their tax reporting obligations.’’
Software Choice Is Now Part of MTD Compliance
Under MTD for Income Tax, taxpayers must maintain digital records of their self-employment or property income and expenses. They also need compatible software to send quarterly updates to HMRC and complete the required reporting at the end of the tax year.
HMRC does not provide its own accounting software for MTD for Income Tax. Instead, taxpayers or their agents must choose software that works with the service. HMRC provides a software finder to help people check available compatible products and advises users to make sure their chosen software meets their individual needs.
This makes software comparison an important practical decision. A sole trader with straightforward records may need something different from a landlord managing several sources of property income.
Who Needs to Check Their Position?
The current rules apply to individuals registered for Self-Assessment who receive income from self-employment, property, or both, and whose qualifying income is above £50,000, unless an exemption applies.
Importantly, qualifying income is based on gross income before expenses. Income from self-employment and property is combined when HMRC determines whether the threshold has been exceeded.
The rollout is also widening. From 6 April 2027, individuals with qualifying income of more than £30,000 will enter MTD, and from 6 April 2028, those with qualifying income over £20,000 will be brought into MTD.
These groups may benefit from reviewing software in advance so they are not forced to change their record-keeping system near their required start date.
Ignoring the Digital Requirements Can Create Problems
HMRC will not issue penalty points for late quarterly updates during the first MTD tax year, 2026 to 2027. However, this does not remove the reporting requirement. Digital records must still be kept, and any outstanding quarterly updates must be sent before the tax return can be submitted.
“Penalties can also still apply for late tax returns and late tax payments.’’
HMRC has also confirmed that customers who signed up from April 2026 but missed the first 7 August quarterly deadline are expected to receive reminder letters from October 2026.
After the first year, missed quarterly deadlines will enter the points-based penalty system. Reaching four penalty points can result in a £200 financial penalty.
Getting the Software Decision Right
Sole traders and landlords should first confirm when MTD applies to them, check whether any exemption is relevant, review how their records are currently maintained and make sure their accounting software is compatible with HMRC’s system.
Lanop can support sole traders and landlords with MTD preparation, cloud bookkeeping, accounting software setup and ongoing tax compliance. Rather than treating software as a standalone purchase, the focus should be on building a digital accounting process that works properly for the individual business or property portfolio.
