The New Regime Starting April 2026

Published 15 March 2026  |  Tax & Compliance Update

After years of delays, consultations and phased announcements, HMRC's Making Tax Digital (MTD) programme reaches its most significant milestone yet: the mandatory roll-out of MTD for Income Tax Self Assessment (MTD ITSA). From 6 April 2026, millions of sole traders and landlords will be required to abandon the familiar annual Self Assessment return and embrace a fundamentally different model of tax reporting — one built around digital record-keeping and quarterly submissions throughout the year.

This article sets out everything you need to know: who is affected and when, what the new obligations involve, how the penalty regime works, and the practical steps businesses and their advisers should take right now.

1. Background: A Programme Years in the Making

HMRC first unveiled Making Tax Digital in 2015 as part of an ambition to become one of the world's most digitally advanced tax administrations. The core diagnosis was clear: too many errors were creeping into paper-based returns, with HMRC's own estimates putting the annual tax gap from avoidable mistakes at around £8.5 billion.

MTD for VAT launched in 2019 for larger businesses and extended to all VAT-registered businesses in April 2022. MTD for Income Tax, however, suffered repeated postponements — originally scheduled for 2018, then pushed to 2023, 2024, and finally confirmed for 6 April 2026 following a December 2022 announcement and subsequent regulations laid before Parliament in February 2024. MTD for Corporation Tax has been shelved indefinitely.

2. Who Is Affected and When

MTD ITSA applies to sole traders and landlords whose gross income from self-employment and/or property exceeds the relevant income threshold. Critically, the threshold is based on gross receipts before expenses — not taxable profit. A landlord earning £55,000 in rental income but showing only £10,000 profit after mortgage costs and repairs is still caught by Phase One. The roll-out is phased across three tax years: 

Whether a taxpayer falls into Phase 1 is determined by their gross income as reported on their 2024/25 Self Assessment return — due on 31 January 2026, just ten weeks before the regime begins. New businesses that first exceed the threshold in a later tax year will be required to comply from the start of their third tax year.

Who Is Currently Exempt?

• Partnerships (no mandatory date set).
• Trustees and personal representatives.
• Non-UK residents (deferred to at least April 2027).
• Individuals completing the SA109 residence pages (deferred to 2027).
• Foster carers (permanently exempt).
• Those who are digitally excluded (exemption available on application).
• Lloyd's underwriters.

3. The Three Core Obligations Under MTD ITSA

3.1 Digital Record-Keeping

Paper records are no longer acceptable. All income and expenses must be recorded digitally using MTD-compatible software throughout the tax year as transactions occur. This represents a shift from annual reconstruction to real-time bookkeeping.

3.2 Quarterly Updates

Taxpayers must submit four cumulative updates per tax year — broadly reflecting year-to-date income and expenses — directly to HMRC via compatible software. These are not mini tax returns; they are running summaries. The standard quarterly deadlines based on the tax year are:

Taxpayers may elect to use calendar-quarter reporting (January, April, July, October), in which case obligations begin from 1 April rather than 6 April.

3.3 Final Declaration

After the fourth quarterly update has been submitted and confirmed, taxpayers complete a Final Declaration — the new equivalent of the annual Self Assessment return. This is where tax and accounting adjustments are made, reliefs and allowances are claimed, and the definitive tax liability for the year is confirmed. The deadline is 31 January following the end of the tax year, in line with the current Self Assessment deadline. There is no longer a separate End of Period Statement (EOPS); it was removed following the 2023 design changes.

4. The Soft Landing: 2026/27

The soft landing applies only to the submission of quarterly updates — it does not extend to late payment penalties or interest on overdue tax liabilities. From the 2027/28 tax year, the full penalty regime applies in all respects. The soft landing is not expected to be offered to Phase 2 or Phase 3 entrants.

5. The New Penalty Regime

MTD replaces the existing fixed-penalty Self Assessment regime with a points-based system for late submissions, already in force for MTD VAT.

Late Submission Penalties

• Each missed quarterly update or Final Declaration deadline earns one penalty point.
• Once a taxpayer accumulates four points, a £200 fine is automatically issued.
• Every subsequent missed deadline adds a further £200 fine.
• Points expire only after 12 months of full compliance and once all submissions due in the preceding 24 months have been filed.

Late Payment Penalties

• Late payment penalties are tiered and begin accruing from day 16 after the payment due date.
• Interest also accrues on overdue amounts from the first day of lateness.
• These apply even during the 2026/27 soft-landing period.

6. Software Requirements

Compliance with MTD ITSA requires the use of HMRC-recognised compatible software for both record-keeping and submissions. HMRC does not provide its own free software for the income tax regime (unlike MTD VAT). Options broadly fall into three categories:

Taxpayers should verify that their chosen software is on HMRC's approved list and begin testing it well before April. The HMRC private beta (pilot), launched in April 2024, remains open to eligible taxpayers and advisers who wish to familiarise themselves with the system in advance.

7. Practical Implications

For Sole Traders and Landlords

The shift to quarterly reporting changes the rhythm of tax compliance fundamentally. Rather than a single annual reckoning in January, business owners now have four submission deadlines spread across the year, plus a Final Declaration. This may actually improve cash-flow planning — tax obligations become visible sooner — but it demands a consistent approach to bookkeeping throughout the year. Income and expenses should be recorded as they occur, not reconstructed months later.

For Accountants and Tax Advisers

MTD ITSA will reshape the adviser-client relationship significantly. The traditional January rush gives way to ongoing, year-round engagement. Accountants working on clients' behalf will be handling 2025/26 annual returns at the same time as near-real-time work for 2026/27. Billing models, workflows and client communication strategies all require review. ICAEW has noted that transitioning to more frequent billing cycles — potentially monthly — brings its own challenges, even as AI and automation tools begin to reduce the time cost of routine compliance tasks.

8. Action Checklist: Are You Ready?

9. Conclusion

Making Tax Digital for Income Tax is no longer a future concern — it is here. For the hundreds of thousands of sole traders and landlords entering Phase 1 this April, the window to prepare is narrow. The soft landing for 2026/27 provides some breathing room on submission penalties, but it should not be treated as an excuse for inaction. The underlying legal obligation to keep digital records and submit quarterly updates is in force from day one.

Those who act now — choosing software, migrating records, briefing their advisers — will find the transition manageable and may even discover genuine benefits in having a clearer, more timely picture of their tax position throughout the year. Those who delay risk scrambling through the regime's first year without the systems or habits to support it, and from 2027/28, the full weight of the points-based penalty regime will leave no margin for error.

This article is for general information purposes only and does not constitute tax advice. Individual circumstances vary and professional advice should be sought before taking action. Prepared 15 March 2026.