Making Tax Digital for Income Tax has started, and the real cost is not the software

If you trade as a sole trader or take rental income, the way you report it to HMRC changed on 6 April 2026. Making Tax Digital for Income Tax is now live for the first band of people, and it is coming for almost everyone else over the next two years. Most of the noise is about which software to buy. That is the small question. The bigger one is what this does to your time, your cash, and quietly, what your business is worth.

What actually changed on 6 April 2026

Making Tax Digital for Income Tax (often written MTD for ITSA) replaces the once-a-year Self Assessment habit with digital record-keeping and quarterly reporting. From 6 April 2026 it is mandatory for sole traders and landlords whose qualifying income was over £50,000 in the 2024 to 2025 tax year. Qualifying income is your gross income from self-employment and property added together, before you take off any expenses or allowances, so it is a bigger number than the profit you are used to thinking about.

If you are in scope you now have to:

• Keep your records digitally, not in a shoebox or a spreadsheet you tidy up in January.
• Use MTD-compatible software to store those records and talk to HMRC.
• Send quarterly updates of your income and expenses through that software, then finalise the year with a final declaration that replaces the old tax return.

HMRC expects around 780,000 sole traders and landlords in this first wave.

Who is next, and who is not

The threshold steps down on a fixed timetable:

• From 6 April 2027: qualifying income over £30,000 (based on your 2025 to 2026 figures). Roughly a further 970,000 people.
• From 6 April 2028: qualifying income over £20,000 (based on your 2026 to 2027 figures).

Two honest clarifications, because the confusion costs people money. This is for sole traders and landlords. If you run your business through a limited company, MTD for Income Tax does not apply to you (Corporation Tax is a separate track that has not started). And the threshold is on turnover-style gross income, not profit, so a business with modest margins can still be well over the line.

The real cost is not the £50 a month of software

The subscription is the least of it. The actual cost is the shift from one big annual scramble to a rhythm you have to keep up all year. If your bookkeeping currently happens in a panic before the January deadline, quarterly reporting turns that panic into four smaller ones, unless you fix the underlying habit. The owners who struggle are the ones bolting software onto messy records. The owners who barely notice are the ones whose books were already clean and current.

There is a genuine cost in owner hours here, and owner hours are the scarcest thing in an owner-operated business. Spent well, once, on getting the books onto a system, it comes back. Spent badly, every quarter, it is a new recurring tax on your attention.

The part that hits what your business is worth

Here is the link almost no one makes. When you sell a business, the buyer's due diligence lives or dies on your financial records. Clean, digital, up-to-date books let a buyer verify the profit you are claiming. Messy, reconstructed-from-memory books force a buyer to either walk away or discount the price to cover the risk that your numbers are soft. A business whose real earnings a buyer cannot trust is worth less, sometimes much less, than one whose numbers are obviously solid.

MTD drags every sole trader toward the standard of bookkeeping that a sale requires anyway. The compliance job HMRC is forcing on you in 2026 is, almost line for line, the financial-readiness job you would have to do before you could sell in 2029. So the smart move is to do it once, properly, and get both: the tax compliance and the clean seller's discretionary earnings story that protects your price.