Making Tax Digital 2027: Sole Traders Have Just Six Months to Get Ready
If you’re self-employed or earn income from property, there’s an important tax change approaching and HMRC is urging people to start preparing now.
From 6 April 2027, Making Tax Digital (MTD) for Income Tax will become mandatory for sole traders and landlords with qualifying income of more than £30,000 a year.
With just six months to go, now is the time to understand whether the new rules apply to you and make sure your accounting processes are ready.
What has HMRC announced?
On 5 October 2026, HMRC issued a new reminder to sole traders and landlords earning more than £30,000 to prepare for the next stage of Making Tax Digital.
The first phase of MTD for Income Tax became mandatory in April 2026 for those with qualifying income above £50,000.
From 6 April 2027, the threshold falls to £30,000, bringing more than one million additional sole traders and landlords into the system.
The threshold is then due to reduce again to £20,000 from April 2028.
For many small business owners, freelancers and landlords, this means the way they keep financial records and report information to HMRC is about to change significantly.
Does the £30,000 threshold mean profit?
No. And this is an important distinction.
For Making Tax Digital purposes, HMRC looks at your qualifying income, which is your gross income from self-employment and property before expenses and tax allowances are deducted.
For example, if your business generated £38,000 in income but you had £12,000 of allowable business expenses, your profit may only be £26,000.
However, it is the qualifying gross income that matters when determining whether you fall within the MTD threshold.
If you have both self-employment and property income, these income sources can also need to be considered together when calculating your qualifying income.
What will Making Tax Digital actually change?
If you fall within the new rules, you will need to use MTD-compatible software to maintain digital records of your business or property income and expenses.
You will also need to send HMRC quarterly updates containing summaries of your income and expenses.
These quarterly updates are not four additional tax returns. Instead, they provide HMRC with regular summaries based on the digital records you have maintained throughout the year.
You will still need to complete the required end-of-year process and meet the usual deadline for paying the tax you owe.
Why start preparing now?
April 2027 might sound a while away, but leaving the transition until the last minute could create unnecessary pressure.
Preparing early gives you time to:
establish whether MTD applies to you
choose suitable compatible accounting software
move your existing bookkeeping onto a digital system if necessary
become comfortable recording income and expenses digitally
understand how quarterly updates will work
identify any gaps or issues before MTD becomes mandatory
HMRC is actively encouraging people affected by the April 2027 expansion to start preparing now rather than waiting until the new tax year.
What if I already use accounting software?
If you already use software such as cloud accounting or bookkeeping software, you may already be part of the way there.
However, using accounting software does not automatically mean that your current setup meets all Making Tax Digital requirements.
It is worth checking that your software is compatible with MTD for Income Tax and that your bookkeeping processes are set up correctly ahead of April.
This is also a good opportunity to review how you currently manage your accounts and whether there are ways to make the process simpler.
Are there exemptions from Making Tax Digital?
Yes. Certain people may qualify for an exemption, including some individuals who are digitally excluded.
There are also circumstances where MTD requirements do not currently apply.
However, exemptions are subject to specific HMRC rules, so it is important not to assume that you are exempt simply because using digital accounting would be inconvenient or unfamiliar.
If you are unsure whether the new rules apply to you, professional advice can help you understand your position.
What should sole traders and landlords do now?
The most important thing is not to panic! But equally, don't ignore the change until April.
Start by establishing your qualifying income and whether the £30,000 threshold applies to you.
From there, you can review your current bookkeeping system, identify suitable software and make any changes gradually rather than trying to overhaul everything when the deadline arrives.
If you already work with an accountant, now is a good time to discuss how they plan to manage Making Tax Digital on your behalf.
Need help preparing for Making Tax Digital 2027?
At Parker Whitwood, we work with sole traders, landlords and small businesses across Altrincham, Manchester, Cheshire and the surrounding areas, helping make accounting and tax requirements easier to understand and manage.
Making Tax Digital 2027 doesn't need to mean more stress or complicated bookkeeping.
We can help you understand whether the new rules apply to you, review your current accounting processes and make sure you're properly prepared ahead of 6 April 2027.
