Making Tax Digital: A brand new tax system is coming – right here’s what the self-employed and freelancers have to know

[ad_1] Thousands and thousands of sole merchants and landlords have simply months to arrange for large adjustments to the tax system that take impact subsequent yr.

From 6 April 2026, Making Tax Digital for Revenue Tax Self Evaluation (MTD ITSA) will apply to sole merchants and landlords whose mixed gross earnings from self-employment and/or property exceeds £50,000 a yr. If this is applicable to you, you’ll have to hold digital information and use HMRC-compatible software program to submit 4 quarterly updates after which a ‘last declaration’ to HMRC annually. This can exchange the present self-assessment tax return.

The Authorities claims MTD will “modernise the tax system” and “cut back the tax hole”. However critics says HMRC’s communication on the topic has been woefully missing, with the brand new regime set to price freelancers and landlords money and time.

Manase Mtopa, head of UK at accounting service Hnry, says: “Submitting of taxes was once a free service accomplished yearly, so introducing the necessity to use software program quarterly will invariably introduce prices to the taxpayer. The self-employed are sometimes paying for a enterprise checking account and accountant already so that is an unwelcome price.”

No matter your view, MTD is on its method and it’s greatest to arrange now.

Who's affected by MTD?

Should you’re a sole dealer and/or landlord with a qualifying earnings of greater than £50,000 for the 2024/25 tax yr, you’ll have to adjust to MTD from 6 April 2026. The brink falls to £30,000 from April 2027, after which to £20,000 in April 2028.

MTD has already been launched for VAT-registered companies. These corporations could have a headstart when complying with MTD IT guidelines – however it will likely be a serious change for different sole merchants and landlords.

I’m a sole dealer. What do I have to do?

From April 2026, everybody who falls underneath MTD might want to make quarterly digital submissions to HMRC.

These will embrace a abstract of earnings and bills for every quarter, with deadlines on the seventh of the month after the quarter ends. No tax is calculated or payable at this stage – it’s simply reporting.

By 31 January following the tax yr finish (i.e. 31 January 2028 for the 2026/27 tax yr), a ‘last declaration’ turns into due. This can be much like the present self-assessment return, however can be pre-populated with the earnings and bills from the quarterly updates already filed. Nonetheless, these entries will must be adjusted for accounting and tax functions – for instance, disallowing components of personal use or capital expenditure.

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The cost deadline dates for earnings tax will stay the identical as underneath the present self-assessment system: 31 January and 31 July annually.

(Getty Photos) What software program do I would like?

All submissions should be made via MTD-compatible software program. You'll be able to both use “bridging” software program which submits information from spreadsheets to HMRC, or full-MTD suitable software program which does all the things.

A listing of suitable software program suppliers is on the market on the Gov.UK web site, together with free and paid-for choices from corporations akin to Coconut, 123 Sheets, FreeAgent and Xero.

Arjun Kumar, founding father of Taxd, says: “There’s a false impression that it's important to use costly, totally built-in software program for this. The reality is, you possibly can nonetheless use a easy spreadsheet in your digital information.

“Nonetheless, software program is the sensible alternative. It might probably join on to your accounts, mechanically categorising all the things and holding you audit-ready. For many who are cautious of that degree of integration, 'bridging software program' is the proper middle-ground, it merely sends your quarterly information to HMRC without having direct entry to your books.”

Are taxpayers prepared for the brand new regime?

A survey by accounting software program agency FreeAgent discovered a worrying lack of information about MTD – nearly two in each 5 (39 per cent) survey respondents stated they'd by no means even heard of it.

Jon Martingale, head of product administration at FreeAgent, says: “This lack of readability appears to stem from the complexity of the adjustments and the numerous methods folks entry info. Whereas many are turning to software program suppliers or accountants for help, our information reveals that almost 60 per cent nonetheless really feel they haven’t had sufficient steerage to totally perceive what’s coming.”

Regardless of doing a completely dismal job of publicising MTD, HMRC is introducing a points-based penalty system for non-compliance from April 2026. Every late quarterly submission earns one penalty level, with 4 factors equalling a £200 penalty. Factors expire after 24 months if compliance improves.

“This method is extra lenient than speedy fines, particularly for infrequent errors, and offers taxpayers an opportunity to enhance. Nonetheless, for many who persistently miss deadlines, the fines can add up,” says Brad Wilkinson at accountancy follow Ascendis, “Whether or not they’re ‘honest’ is subjective. Some argue that the system is burdensome, particularly for landlords or sole merchants with easy tax affairs. Supporters say it encourages higher compliance and brings tax in step with trendy digital requirements.”

Sole merchants and landlords can signal as much as a HMRC pilot programme now – this can support in attending to grips with the brand new system earlier than April.