With the threshold falling to £30,000 in six months, Oxfordshire accountants warn the next wave could face the same pitfalls — including being caught out by turnover, not profit.
- HMRC figures show 436,000 of the 864,000 taxpayers in the first MTD group submitted their first quarterly update by the 7 August deadline.
- From 6 April 2027, around 1,077,000 more sole traders and landlords will be brought into MTD as the threshold falls from £50,000 to £30,000.
- The test is based on gross income before expenses, meaning people with relatively modest profits could still be caught.
- From April 2027, penalty points will apply to missed quarterly deadlines, with a £200 penalty once four points are reached.
Around a million more sole traders and landlords could be facing a change to how they manage their tax records in just six months, but many may not realise the rules apply to them.
HMRC confirmed on 5 October that Making Tax Digital (MTD) for Income Tax will extend to sole traders and landlords with qualifying income above £30,000 from 6 April 2027. The threshold is currently £50,000, and HMRC estimates around 1,077,000 additional people will be brought into the system.
The first group offers an early indication of the challenges people could face. Of the 864,000 taxpayers expected to fall within the initial phase, just 436,000 had submitted their first quarterly update by the 7 August deadline. While those who missed it can still submit their updates, the figures highlight how easily people can fall behind when adapting to a new system.
Ridgefield Consulting, Chartered Accountants based in Oxfordshire, warns that the next wave of affected clients should use the time available to understand what MTD means for them.
There are four key things sole traders and landlords need to know.
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It’s based on turnover, not profit
The £30,000 threshold is based on qualifying income from self-employment and property before expenses are deducted. This means someone with £32,000 in sales but only £14,000 in profit could still fall within the rules.
People with more than one source of qualifying income may also need to add their self-employment and property income together. Employment income, dividends and pensions do not count towards the threshold.
- Different income sources can push you over the threshold
A sole trader who also earns rental income could be brought into MTD even if neither income stream appears particularly high on its own. It is the combined qualifying income that matters, rather than simply looking at one business or property in isolation.
This is particularly important for landlords with several properties or people running a small business alongside a rental property, who may underestimate their total qualifying income. Employment income, dividends and pensions do not count towards the qualifying-income threshold.
- You don’t need expensive accounting software
Those brought into MTD will need to keep digital records, submit quarterly updates using compatible software and complete a final submission. However, this does not necessarily mean paying for a full accounting package.
Spreadsheets can still be used to maintain digital records, provided the relevant requirements are met, with compatible bridging software used to submit information to HMRC. There are also third-party providers offering free MTD software. The key is to find a suitable solution and ensure it meets HMRC’s requirements before the deadline.
- The next group faces a different penalty regime
Those already using MTD have their second quarterly update deadline on 7 November. During the 2026/27 tax year, HMRC is not applying penalty points for late quarterly updates.
That changes from April 2027, when the next group enters the system. A missed quarterly deadline will attract a penalty point, and a £200 financial penalty will apply once four points have accumulated. This gives people approaching the new threshold another reason to get prepared rather than leaving everything until the last minute.
Simon Thomas, Managing Director at Ridgefield Consulting, said:
“The £30,000 figure sounds like a lot, but it’s measured on what comes in, not what’s left after expenses. Plenty of small business owners and landlords who think of themselves as modest earners could find they’re in scope once they add up their qualifying income.
“This isn’t just a software change. It means keeping records up to date throughout the year rather than gathering receipts in January.
“Six months sounds like a long time, but there’s quite a lot to do between now and April. People need to work out whether they’re in scope, choose compatible software and get used to keeping their records digitally. The sooner they start, the less stressful the transition is likely to be.”
The threshold will fall again to £20,000 from April 2028, bringing another group of sole traders and landlords into the system.
HMRC is encouraging eligible people to sign up early. Those who may be affected should check their qualifying income and establish whether they will need to keep digital records and submit quarterly updates.
With six months to go, now is the time to find out whether MTD applies to you.
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