Millions of people will soon be required to start using a new tax system
HMRC has share guidance about a major tax shake-up set to impact millions of people. The revenue body is gradually expanding its Making Tax Digital initiative, which launches in April 2026.
Officials have described the new digital record-keeping requirement as “the biggest change” to the self assessment system since its launch in 1997. The scheme will be phased in gradually, with penalties looming for those who fail to meet the requirements. Around three million people will ultimately fall under its remit.
The programme means sole traders and landlords must have in place compatible software for Making Tax Digital, to maintain digital records of their self-employment and property income and outgoings. They’ll be required to submit quarterly updates to HMRC and file a tax return, with any outstanding tax due by January 31 the following year.
This matches the existing deadline for submitting self assessment returns for the prior tax year. Starting April 2026, sole traders and landlords earning £50,000 or more gross income during the 2024/2025 tax year must register for the scheme.
From April 2027, this threshold drops to £30,000 for the current tax year. The Government intends to widen the net further to capture those earning £20,000 or above in the 2026/2027 tax year.
New penalty rules
HMRC was questioned about what sanctions await those who fail to comply with the scheme when required. The group stated: “Customers joining Making Tax Digital in April 2026 will be subject to the new penalty reform rules if they fail to submit their tax return or pay what they owe on time.
“Penalty reform rules mean customers are given points for failing to submit quarterly updates or their tax return, on time.” HMRC is also making changes to the late payment penalties to make them “more proportionate” to how long the payment remains outstanding, as well as the sum that is owed.
However, HMRC has confirmed that for the 2026/2027 period, it will not issue penalty points to customers who fail to send their quarterly updates on time. An HMRC spokesperson said: “If you’re a sole trader or landlord, Making Tax Digital for Income Tax is a major change to how you keep your self-employment and property records and report them throughout the year.
“It’s the biggest transformation since Self Assessment launched in 1997 and it will make your life easier. Find out more about how to prepare by visiting our guidance page.”
Sign up early
If you need to begin using Making Tax Digital from April 2026, HMRC advises you “should sign up before that date so you are prepared”. You can register before you are required to use the system, to ensure you are ready.
You even have the option to sign up and begin using the system now, for the current 2025/2026 tax year. You can use compatible software to submit your quarterly updates for the year so far.
For the latest money saving tips, shopping and consumer news, go to the new Everything Money website.
