Making Tax Digital (MTD) letters are landing: What landlords and sole traders earning over £50k per year should know
A second round of letters is being issued by HMRC to individuals whose recent tax returns suggest their combined business and property income is at or above £50,000.
The purpose is to give advanced warning that, from 6 April 2026, those taxpayers are expected to move into Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA).
MTD has had accountants in a spin for several years now, ever since it was first announced in the March 2015 budget. Yes, you heard right, nearly 11 years ago.
But what does it actually mean, and will it be a headache or a blessing for taxpayers and their advisers?
In practice MTD means the once-a-year Self-Assessment return is gradually being replaced with digital record-keeping and regular online reporting.
Rather than pulling figures together once a year at the end of the tax year, taxpayers who fall within the scope of MTD will need to keep their records in HMRC-compatible software and send quarterly updates showing income and expenses as the year goes along.
At the end of the year, there will still be a final declaration to confirm totals and make any adjustments.
This means, of course, that the days of purely paper-based systems or last-minute spreadsheets are numbered.
HMRC says the move is designed to reduce errors and give taxpayers a clearer, more up-to-date picture of their tax position. In theory, this could help many people plan and manage cashflow a lot better, but for many landlords and sole traders, it represents a big operational change rather than a simple tweak and at the moment it probably all feels a bit daunting. And let’s be honest despite it taking HMRC nearly 11 years to roll out there will surely be teething problems. At ETC Tax we regularly work with accountants, many of whom still remain unclear on some of the day-to-day practicalities; practicalities that will only become apparent as people start to file.
From April 2026, MTD applies where qualifying income, (that’s gross turnover from self-employment and property before expenses), exceeds £50,000.
(In April 2027, the threshold is scheduled to fall to £30,000, with a further reduction to £20,000 planned for April 2028).
That means this isn’t just something that applies to large rental portfolios or high-earning consultants. Someone with a modest trade and/or a couple of rental properties could easily fall within MTD especially once the lower thresholds are brought in.
HMRC is using information from recent tax returns to identify people who are likely to be affected.
The aim is to give people as much advance notice as possible.
This is important as the figures below indicate:
So, what are the takeaways here? Initially the key thing is that even if you think your income may fall below the limit by the time April 2026 arrives, receiving a letter is a signal that HMRC believes you could be within the scope of MTD and so it’s worth checking your position carefully.
It’s also important to remember that qualifying income is looked at in total. Rental profits and trading income are added together, which can catch people out if they only focus on one source of income in isolation.
First, review your numbers. Look at your most recent tax returns and any forecasts to see whether your combined turnover is likely to exceed the £50,000 threshold in 2026/27.
Next, think about systems. If you’re still relying on spreadsheets or paper records, you’ll need to move to software that can keep digital records and connect directly with HMRC for submissions. That needs to be done quickly.
Most importantly, speak to an adviser sooner rather than later. Getting ready for quarterly reporting takes time, workflows might need to change, bookkeeping habits may need tightening up, and software choices have to be made.
MTD for Income Tax is one of the biggest changes to personal tax compliance in years. Receiving a letter is not a cause for panic, but it is a clear nudge that the way you report income is about to change.
With some forward planning and the right advice, the transition doesn’t have to be painful, and it can even provide better visibility over your tax position along the way.
If you are unsure whether you may be caught by the new rules or you feel your tax affairs are getting too complex for you to handle, get in touch and we can help.
