The UK tax system is going through its biggest shake-up in almost 30 years. Making Tax Digital (MTD) is a government programme that is replacing paper-based record keeping with digital reporting for businesses and individuals across the country.
For those based in the capital, making tax digital in London is already reshaping how sole traders, freelancers, and landlords manage their tax affairs. If you run a business or rent out property, understanding these changes is essential.
What Is Making Tax Digital?
Making Tax Digital is HMRC’s plan to digitise the UK tax system. It requires taxpayers to keep records using approved software and submit tax information electronically.
MTD for VAT has been fully in place since April 2022. The next major phase, MTD for Income Tax, is now live from April 2026. It targets sole traders and landlords, replacing the annual self-assessment return with quarterly digital updates.
The aim is to reduce costly errors in tax reporting, give taxpayers real-time visibility of what they owe, and bring the system in line with modern digital standards.
Key Deadlines and Income Thresholds
MTD for Income Tax is being rolled out in three phases based on qualifying income from self-employment and property combined.
From April 2026, those earning above £50,000 must comply. From April 2027, the threshold drops to £30,000. From April 2028, it drops again to £20,000.
The first quarterly update covers 6 April to 5 July 2026 and is due by 7 August 2026. A final year-end declaration is due by 31 January after the tax year ends.
Partnerships and limited companies are not currently included, though HMRC plans to bring them in at a later date.
What Changes for Day-to-Day Accounting?
The biggest change is the move from annual filing to quarterly reporting. Instead of gathering records once a year, you now need to maintain up-to-date digital records throughout the year.
All income and expenses must be recorded digitally using HMRC-recognised software. Paper records and standalone spreadsheets alone will no longer be enough.
You must submit four quarterly summaries of income and expenses to HMRC, followed by a final declaration at year end. Your software generates these updates from your digital records.
If you use more than one piece of software, a compliant digital link must connect them. Manual copy-and-paste between systems is not allowed under the MTD rules.
Making Tax Digital in London: Why It Matters Locally
London has one of the highest concentrations of self-employed professionals and property landlords in the UK. This makes the capital a major focal point for the MTD rollout.
Making tax digital in London affects tens of thousands of freelancers, consultants, and buy-to-let landlords whose rental incomes frequently exceed the £50,000 threshold. HMRC estimates that around 118,000 landlords across the UK must comply for the 2026/27 tax year, with a significant share operating in London.
London-based businesses often manage multiple income streams and complex financial arrangements. Working with a specialist like ABM Chartered Accountants ensures you get tailored MTD advice suited to the capital’s fast-moving economy.
Choosing the Right MTD-Compatible Software
One of the first decisions you will need to make is which software to use. HMRC publishes a list of recognised products through its Software Choices service on GOV.UK.
Popular options include Xero, QuickBooks, Sage, and FreeAgent. Each offers features like automated bank feeds, receipt scanning, invoicing, and direct quarterly submissions to HMRC.
Free software is available for those with straightforward tax affairs. However, if you manage multiple properties or income sources, a paid solution with more advanced reporting features is usually the better choice.
Your accountant can recommend the right platform based on your business type and complexity. Getting this decision right early saves time and avoids costly migration later.
What Are the Penalties for Non-Compliance?
HMRC has introduced a new points-based penalty system. You receive one point for each late quarterly submission. A £200 fine is only triggered once you reach four points.
For the first year (2026/27), HMRC has confirmed that no penalty points will be issued for late quarterly updates. This gives taxpayers a grace period to adjust. However, penalties for late annual returns still apply.
Benefits of Going Digital
MTD is not just about compliance. It brings real advantages for businesses that embrace the shift.
Digital records reduce manual errors. HMRC has stated that mistakes in tax reporting cost billions annually, and automation helps close that gap.
Quarterly reporting gives you a clearer picture of your tax position throughout the year. No more unexpected bills in January.
It also opens the door to a more proactive relationship with your accountant. With real-time data flowing into your software, your accountant can offer strategic advice rather than just filing returns.
How to Prepare for MTD
Start by choosing HMRC-recognised accounting software. Options range from free tools for simple tax affairs to paid platforms like Xero, QuickBooks, Sage, and FreeAgent.
Begin keeping digital records now, even if your mandation date is later. Building the habit early makes the transition much smoother.
Register for MTD with HMRC before your eligible tax year starts. You can do this yourself or your accountant can handle it through their Agent Services Account.
Most importantly, get professional guidance. Making tax digital in London involves navigating complex income structures and property portfolios. ABM Chartered Accountants can review your situation and create a personalised compliance plan.
The Role of Chartered Accountants Under MTD
Chartered accountants are at the heart of the MTD transition. They help clients choose software, set up digital records, and meet quarterly deadlines.
Recent research shows that 94% of affected taxpayers are either unprepared or only partially ready. This highlights the urgent need for professional support.
Making tax digital in London demands local expertise. ABM Chartered Accountants understands the unique challenges facing London’s landlords, freelancers, and small business owners and provides hands-on MTD support from setup to submission.
Who Is Exempt from MTD?
HMRC can grant exemptions for individuals who are digitally excluded due to age, disability, location, or religious reasons.
If your qualifying income drops below the threshold for three consecutive tax years, you will also exit the MTD requirement. Those based outside the UK only need to report UK self-employment and property income under MTD.
What Comes Next?
MTD is not a one-off change. It is part of a long-term plan to digitise the entire UK tax system. Corporation tax and partnerships are expected to follow in future phases.
Investing in digital accounting practices now will position your business well for whatever comes next. The sooner you adapt, the less disruption you will face down the line.
Frequently Asked Questions
1. Who needs to comply with Making Tax Digital from April 2026?
Sole traders and landlords with combined qualifying income above £50,000 from self-employment and property must comply from 6 April 2026. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. If you are unsure whether you qualify, a chartered accountant can confirm your obligations.
2. What software do I need for Making Tax Digital?
You need HMRC-recognised software that can store digital records, generate quarterly updates, and submit your final declaration. Free and paid options are available. HMRC lists compatible products on GOV.UK. If you use spreadsheets, you will also need bridging software to connect them to HMRC.
3. Will I be fined if I miss a quarterly deadline?
Not immediately. HMRC uses a points-based system where a £200 penalty only applies after four late submissions. For the 2026/27 tax year, no penalty points will be given for late quarterly updates. However, late annual returns can still attract penalties.
