Business owners need to be aware of upcoming changes. In the coming months, those operating businesses as sole traders will have to find out more about how they file a digital tax return. In this blog, we’re letting you know more about Making Tax Digital 2026.
What is Making Tax Digital (MTD)?
This government initiative aims to make filing a tax return easier and help reduce errors. It involves tax returns being completed digitally, rather than manually. Various changes are planned, including the following:
- Digital record keeping of all business income (self-employment income)
- Start quarterly reporting rather than just one annual return (self-assessment tax return)
- Submit a final declaration by January 31st (as usual), after completing quarterly submissions to finalise your tax position.
To make the transition to MTD, sole traders must use compatible software. If you work alongside an accountant, then you should speak to them in advance about this.
When does MTD come into effect?
The new rules begin from April 6th 2026, for sole traders and landlords who earn over £50,000. Those earning over £30,000 will need to comply from April 2027, and self-employed individuals earning over £20,000 will be introduced in 2028.
VAT-registered businesses are already required to comply with ‘making tax digital’.
Should you close your business before MTD compliance?
Changes to regulations and compliance can be stressful, especially if you aren’t expecting them or if they are different to how you have done things before.
It is generally not recommended that you close your business as a result of the changes introduced by MTD.
The most important thing is that you are prepared for the changes. Remember that limited companies are not included in these particular changes. They are for sole traders and landlords.
What should I do?
- Limited company director: You don’t need to take action. These changes do not affect you or corporation tax.
- VAT-registered business: You should continue using MTD.
- Self-Employed: Take action in 2026 if your gross income exceeds £50,000. Start using MTD compatible software.
You must make all tax payments on time to reduce the risk of penalties. Having quarterly submissions via compatible digital tools will enable you to monitor your total gross income more easily and plan ahead for tax liabilities.
What if I am closing my business now?
If you plan to close your business before MTD comes into effect, you will not need to register for MTD; regular self-assessment rules apply. If your business continues past the cut-off date, you must register and submit your income tax using MTD-compliant software.
Getting help with MTD for income tax (sole traders only)
If you work alongside an accountant, it’s recommended that you ask them for personalised advice. They will work closely with you to assess your sole trader business model, profit and long-term goals. They can help you understand the most appropriate steps for your business to take and which accounting software will be the most useful for you, depending on your sole trader income tax threshold.
Do you need business rescue advice? We’re here to help. Contact us today to speak to a trusted advisor regarding MTD income tax.
Justin Barker
I’m Justin Barker, the Managing Director at 1st Business Rescue. I have over 25 years of experience providing insolvency advice to business owners.
I understand how challenging it can be when dealing with financial difficulties within your business. It’s easy to ignore the problem and hope that it disappears, but this is often the worst thing you can do. Our dedicated team is here to provide honest, valuable advice to help UK directors deal with their personal situations in the most appropriate way.
No case or circumstance is the same, but I can guarantee that I am there to give you the best advice.
We are one of the only 5-star corporate insolvency companies on Trustpilot, with hundreds of 5-star reviews. Contact our friendly team for insolvency advice.