Preparing for Digital Tax: What Landlords Need to Know About MTD

A New Era for Landlords Begins in 2026

The way landlords report rental income to HMRC is about to undergo a major shift. Starting in April 2026, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) will come into force for many landlords. This change means moving away from traditional paper records and manual submissions. Instead, affected landlords will need to maintain digital records, use MTD-compatible software, and send quarterly updates to HMRC. This represents a fundamental change in the compliance landscape.

Who Needs to Comply and When?

First Wave: From 6 April 2026

MTD for ITSA will first apply to unincorporated landlords and sole traders whose total property and/or trading income reaches £50,000 or more in the 2024/25 tax year. This includes:

• Income from unincorporated rental properties.
• Trading income from sole trader businesses.

Rental income from incorporated (company-owned) property businesses does not count toward the threshold.

For example:

• A landlord earning £10,000 from rental property and £45,000 from self-employment will be included.
• A landlord with £49,000 in rental income and no trading income will not enter MTD in 2026.

Once a landlord enters the MTD regime, they stay in it—even if income later falls below £50,000—unless income remains below the threshold for three consecutive tax years.

Second Wave: From 6 April 2027

The next stage begins in April 2027, when landlords and unincorporated businesses earning £30,000 or more in total income (from property and/or sole trader activity) will also come under MTD for ITSA.

Future Plans for Smaller Landlords

Eventually, landlords and businesses earning £20,000 or more per year will be required to comply, although the Government has not yet confirmed a date for this final stage.

How Reporting Will Change

At present, landlords earning more than £1,000 annually (outside the Rent-a-Room scheme) report profits via the Self Assessment tax return by 31 January each year. They can keep their records in whatever format they choose.

Under MTD for ITSA, the reporting process becomes more structured and digital:

• Digital records of income and expenses must be maintained.
• Landlords will need to submit quarterly updates to HMRC summarizing income and expenses.
• Updates can be made using software that’s compatible with HMRC’s system.

Landlords can choose whether to submit based on:

• Standard tax quarters (to 5 July, 5 October, 5 January, and 5 April), or
• Calendar quarters (to 30 June, 30 September, 31 December, and 31 March).

HMRC publishes a list of approved commercial software options and has committed to offering free software for those with the simplest financial situations.

Final Declaration: Wrapping Up the Tax Year

After submitting the final quarterly report for the tax year, landlords must file a final declaration—akin to today’s Self Assessment return. This is where landlords:

• Claim tax reliefs and allowances,
• Report any additional income not covered by MTD (e.g., bank interest or employment income), and
• Confirm that all submitted information is complete and accurate.

Tax Payments Stay the Same

It’s important to note that MTD only changes how income is reported, not when or how much tax is paid. Payment deadlines remain as they are under the current self-assessment regime.

Final Thoughts

The move to Making Tax Digital represents a big change for landlords, particularly those who have managed finances manually until now. Preparing early—by understanding the rules, reviewing your income thresholds, and choosing suitable software—can ensure a smooth transition into the new digital regime.

Partner Note: TMA 1970, s. 12C and Sch. A1; Income Tax (Digital Requirements) Regulations 2021 (SI 2021/1076)

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