‘Widespread Non-Compliance’: Three-Quarters of Landlords and Sole Traders Miss Deadlines for Making Tax Digital for Income Tax

Slow adoption despite clear government deadlines

HM Revenue & Customs (HMRC) achieved a major milestone on 6 April 2026, when the first phase of Making Tax Digital for Income Tax officially launched. From this date, landlords and sole traders with an annual income above £50,000 from self‑employment or property must digitally record their income and expenses and submit quarterly updates using compatible software. However, despite extensive consultation and a gradual timetable, the response has been slower than expected. A recent report revealed that three-quarters of the affected businesses missed the registration deadline, raising concerns about awareness and readiness ahead of the upcoming quarterly reporting deadlines.

Key takeaways:

• MTD for income tax goes live: From 6 April 2026, landlords and sole traders with an income exceeding £50,000 must comply with the digital tax rules.
• Phased introduction: Those earning between £30,000 and £50,000 will need to comply from April 2027, and those earning over £20,000 by April 2028.
• Slow uptake: Of the 864,000 individuals expected to register by 6 April, only 218,000 had done so by 14 April, leaving roughly three-quarters of those affected outside the system.
• Awareness gap: Josh Toovey from the Association of Independent Professionals and the Self-Employed highlighted a significant awareness gap, especially among those without accountants.
• Penalties and reporting deadlines: HMRC confirmed that late registrations will not incur fines, but once quarterly reporting begins in August 2026, businesses must be fully compliant, with no room for error.

Understanding Making Tax Digital for Income Tax Obligations

For those required to use MTD in April 2026, the regime involves a fundamental shift in how records are kept and tax liabilities are calculated, particularly for sole trader tax digitalisation. Taxpayers are required to use approved software to create and maintain digital records of their income and expenses, submit quarterly updates to HMRC, and file an end-of-period statement and final declaration by the following 31 January. HMRC’s guidance emphasises that digital records must be maintained on a continuous basis and that each income source (self-employment or property) may need to be reported separately.

Those who sign up now will enjoy a lenient approach to penalties: HMRC will not apply points for late quarterly updates during the first year (2026‑27), although penalties still apply for late tax returns or payment of tax owed. The department advises taxpayers to sign up early rather than risk missing the first quarterly deadline of 7 August 2026. Early signup also allows time to test software, resolve technical issues, and adapt recordkeeping processes. Agents can enrol clients via a separate process.

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Why the slow take‑up?

1. Lack of Awareness About MTD for Income Tax

Several factors contribute to the low registration rate for Making Tax Digital (MTD). First, awareness of MTD for income tax remains patchy outside the professional services community. The scheme has been delayed several times since its announcement in 2015, leading many sole traders and landlords to assume that MTD compliance for landlords would not be required for years. The re-framing of the start date to 2026 in the 2024 Autumn Statement drew limited attention because the thresholds apply to income earned in the 2024-25 tax year—a distinction that many fail to appreciate. Under the rules, HMRC assesses a taxpayer’s qualifying income after they submit their 2024-25 Self Assessment return; if it exceeds £50,000, they must be ready for MTD from 6 April 2026. This time lag can lull affected taxpayers into a false sense of security.

2. Limited Government Publicity Campaign

Second, the government has not undertaken a high-profile publicity campaign. Tax professionals report that many clients have not received the expected letters from HMRC telling them they need to sign up. The Making Tax Digital brand is often associated with VAT, and some self-employed individuals wrongly assume that because they already keep digital VAT records, they do not need to take further action.

3. Confusion About Software Choices

Third, there is confusion about software. HMRC lists dozens of compatible products, from basic spreadsheets with bridging software to full-scale accounting packages. Picking the right solution requires an understanding of one’s business operations, and many landlords and sole traders are reluctant to invest in new software until absolutely necessary. There is also scepticism about whether quarterly updates will lead to more frequent payment demands, even though HMRC insists that tax will still be payable by 31 January following the end of the tax year.

Business implications and risks

• Penalties for non-compliance:
  • HMRC will implement a points-based penalty regime starting from 2026–27 for late submissions.
  • Each late quarterly update will incur one point.
  • Once a threshold of four points is reached (for annual reporters), an automatic £200 fine will apply to subsequent late submissions until the points expire.
  • Late payment of tax will attract interest and surcharges, regardless of the soft-landing period for quarterly updates.
  • Failure to keep digital records could lead to inaccuracy penalties under existing legislation.
• Operational challenges for businesses:
  • Quarterly updates require businesses to maintain accurate, up-to-date records.
  • Sole trader tax digitalisation will require sole traders, who are accustomed to filing only one Self Assessment return per year, to adjust their processes for quarterly updates.
  • Landlords with multiple properties must:
    • Correctly allocate income and expenses.
    • Maintain digital receipts and ensure letting agent statements are fed into the software.
  • Businesses using spreadsheets will need bridging software to submit updates, adding complexity.
• Potential benefits of MTD for Income Tax:
  • Digital record-keeping offers a clearer view of cash flow, profits, and tax liabilities throughout the year, improving budgeting.
  • It reduces the risk of under-reporting and avoids surprise tax bills.
  • Early adoption of software can help businesses streamline invoicing, integrate banking data, and automate calculations, saving time.
  • Agents will have more timely data to provide clients with advice on tax planning and payment on account. 

How Apex Accountants & Tax Advisors Can Support Landlords with MTD Compliance

The low sign-up rate emphasises the necessity for tailored professional support. Apex Accountants & Tax Advisors guides landlords and sole traders through the transition to MTD compliance for landlords. Our services include:

• Eligibility assessment and sign‑up: Reviewing clients’ qualifying income to determine whether they fall within the £50,000 threshold and managing the HMRC sign‑up process.
• Software selection and setup: Helping clients choose compatible software or bridging tools that suit their operations and budget, and assisting with installation and migration.
• Digital record‑keeping support: Designing bespoke bookkeeping workflows, training staff on digital record‑keeping and ensuring that income and expenses are captured accurately in real time.
• Quarterly compliance and review: Preparing and submitting quarterly updates, reviewing data for accuracy and advising on tax planning opportunities arising from interim profits.
• Representation and troubleshooting: Liaising with HMRC on behalf of clients, resolving technical issues and providing guidance if penalty points accrue.

Our chartered tax advisers focus on minimising disruptions and ensuring compliance. With the first quarterly update deadline approaching in August 2026, now is the ideal time to seek expert help. Contact Apex Accountants today to arrange a confidential consultation and prepare your business for the digital tax regime.

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Frequently asked questions

What is Making Tax Digital for Income Tax?

Making Tax Digital for income tax is a requirement for sole traders and landlords to keep digital records and send quarterly updates of business and property income to the HMRC using compatible software. The regime applies to those with an annual income above £50,000 from self‑employment or property from 6 April 2026.

Who needs to sign up and when?

If your qualifying income from self-employment and property is above £50,000 in the 2024–25 tax year, you must sign up for MTD and start digital record-keeping on April 6, 2026. Those earning £30,000–£50,000 must join from 6 April 2027, and those earning above £20,000 must join from 6 April 2028. HMRC will write to you, but you remain responsible for checking and registering.

What counts as qualifying income?

Qualifying income is the combined gross income from all your sole‑trader businesses and property rental (before expenses). It excludes employment income and most pensions. HMRC reviews your Self Assessment return to calculate qualifying income each year.

Will penalties apply if I miss quarterly updates?

HMRC will not issue penalty points for late quarterly updates in the first year (2026‑27). From 2027 to ’28, each late submission will attract a point, and accumulating four points will trigger a £200 fine. Penalties for late tax returns and late payment still apply during the soft‑landing period.

Do I still need to file a Self Assessment return?

Yes. Even under MTD, you must submit a final declaration—similar to a self-assessment return—by the 31st of January, following the end of the tax year. The quarterly updates do not replace the annual tax return; they provide HMRC with periodic data to reduce errors and improve compliance.

Which software should I use?

HMRC does not endorse specific products but publishes a list of compatible software. Choices range from simple spreadsheet solutions with bridging software to full accounting packages. The best option depends on the complexity of your business. Consider factors such as the number of income sources, the need for invoice functions, bank feed integration, and ease of use. Apex Accountants can assist in selecting and setting up a solution tailored to your needs.