Over 400,000 sole traders, landlords and small business owners missed their first Making Tax Digital for Income Tax (MTD) deadline.
According to HMRC, more than 864,000 were due to submit their first quarterly update, and results show that only 436,000 did so on time.
Nearly all those who earned qualifying income, i.e. income before costs from either a sole trade or property rental or both, of more than £50,000 in 2024/25, are now required by law to adhere to MTD for Income Tax rules.
These require digital record-keeping for the qualifying income streams, quarterly tax submissions throughout the year, and a final declaration to be filed for all the taxpayer’s income after the end of the tax year.
The next quarterly update is due on November 7.
Before that – from September – HMRC will begin signing up those who are required to use MTD for Income Tax for the 2026/27 tax year but who have not registered.
Emily Coltman chief accountant at FreeAgent, says: “If you’ve missed the first deadline, make sure you register for MTD for Income Tax if you still need to, choose your functional compatible software, enter all your income and costs into it, and make your first quarterly submission as soon as you can.
“Thankfully, HMRC have waived any penalty points for missing your quarterly submissions in 2026/27, but they will introduce fines from April 2027.
“This is a legal requirement, and those 400,000 people cannot ignore the new Making Tax Digital for Income Tax system, however much they may wish they could.
“It’s a big change, but it may not be as daunting as you fear. Using the right software, it can be quite straightforward to do, however if you need help or support please reach out to an expert – such as a professional accountant or bookkeeper – sooner rather than later. If you go on missing quarterly updates after 6th April 2027, you’ll accrue fines – so it’s best to get a good handle on this now.”
HMRC has introduced a one-year ‘soft landing’ period, whereby penalty points for late quarterly updates won’t be given for the 2026/27 tax year.
However, there is no grace period for late annual final declarations.
Coltman says the most efficient and easiest way to keep on top of MTD for Income Tax is to link your business banking with an HMRC-recognised accountancy software, like FreeAgent, and then explain your bank transactions correctly so that the figures add up ready for submission to HMRC.
From next year, MTD for Income Tax will also apply to sole traders and landlords who earned qualifying income of £30,000 and more in the tax year 2025/26.
