New Digital Tax Rules Set to Impact Landlords and Self-Employed Workers
Advisers are sounding the alarm as hundreds of thousands of landlords and self-employed individuals face potential challenges from new digital tax payment rules set to take effect in 2026. There’s been a noticeable lack of awareness regarding what some are calling the “biggest change in a generation.”
Starting April 6, 2024, individuals with rental or self-employment income exceeding £50,000 will need to report their total income, expenses, and profits quarterly using specialized software. This change is part of the government’s long-awaited Making Tax Digital (MTD) initiative, initially rolled out in the 2015 Budget. The Chartered Institute of Taxation estimates that around 850,000 people will be impacted by these regulations in the 2026-27 tax year.
When the initiative is fully implemented, it is expected to affect at least 3 million individuals, with the income reporting threshold decreasing to £30,000 in April 2027 and dropping further to £20,000 by April 2028.
Simon Armstrong, director at Menzies, points out that many business owners are currently preoccupied with economic challenges and recent budget adjustments, making it difficult for them to focus on understanding MTD compliance. He mentions, “There’s a real lack of awareness of MTD obligations.”
Similarly, Nikita Cooper from Price Bailey has observed that many affected individuals are unclear about what these changes entail, including the necessary steps they’ll need to take. Clare Roberts, a tax partner at Moore Kingston Smith, warns that the lack of understanding could leave many scrambling to register and comply as deadlines approach.
Under the new rules, relevant individuals are required to keep digital records and submit quarterly summaries to Revenue and Customs. Price Bailey has suggested several preparatory steps, such as registering with the MTD Online Gateway and separating business and personal accounts.
Taxpayers need to select software from a list of government-approved providers. While some software options are free, accountants caution that these may only be suitable for very basic tax tasks, and many users might not realize they will likely need to pay for software that meets MTD standards.
Armstrong emphasizes the need for HMRC to enhance its awareness campaign, noting that the current messaging may oversimplify the substantial changes ahead, particularly regarding investment in necessary software and systems.
Concerns have also been raised by tax experts regarding the general public’s understanding as well as HMRC’s preparedness. Jack McConnell from TaxWatch highlighted that this represents a dramatic shift in tax payment processes for nearly 3 million people. However, he expressed worries about HMRC’s infrastructure readiness, stating that many of its digital tools for MTD are still a work in progress.
He pointed out that the tests may be conducted with real taxpayer data, which raises concerns about privacy and potential errors. Additionally, less than 20% of the MTD APIs can retain previous changes, making comprehensive testing a struggle with only months until implementation.
In acknowledgment of potential issues, HMRC is foregoing penalties for late quarterly returns during the 2026-27 tax year. They assert, “We have worked extensively with customers, representative bodies, and software developers to ensure Making Tax Digital works for small businesses and landlords, helping them prepare for change.”
The spokesperson added that this initiative aims to close the tax gap by making it easier for businesses to file their taxes accurately, thus minimizing stress and additional costs resulting from errors.
