What is Making Tax Digital?

Making Tax Digital (MTD) is a UK government initiative to modernize the tax system by moving it online. It was first announced in 2015 as part of a plan to end traditional yearly tax returns and make tax administration more effective, efficient, and simpler for taxpayers . In simple terms, MTD means that businesses and individuals (including landlords) will keep digital financial records and send updates to HM Revenue & Customs (HMRC) using software, rather than filing paper forms. The goal is to reduce errors and make it easier to “get tax right” in real time, instead of rushing to meet deadlines with piles of paperwork. For landlords, this means how you report your rental income and expenses to HMRC is changing – moving from one annual Self Assessment return to more frequent digital updates.

How MTD started and evolved (2015–2019)

The idea of MTD has been around for a while. Back in 2015, the government laid out a vision of a transformed, fully digital tax system by 2020 . Initially, HMRC planned an aggressive timeline: income tax updates (affecting sole traders and landlords) were to go first in 2018, followed by VAT in 2019 and corporation tax in 2020 (see The House of Commons library) . In this original plan, even landlords and self-employed people with relatively modest turnovers (over £10,000) would have had to start quarterly digital reporting for Income Tax by 2018 . However, these early plans were met with concern. Accountants, small business owners, and landlords worried the change was too fast. There were fears about the cost of new software, the digital skills required, and the burden on people not used to managing taxes online. Many pointed out potential issues for those with poor internet connectivity or limited tech experience. In response to these concerns, the government decided to slow things down and adjust the scope of MTD.

In July 2017, HMRC announced a revised timetable after feedback from stakeholders. Importantly, they paused the income tax part of MTD and decided to start with VAT only. The government’s 2017 update made it clear that no business or landlord would be forced into MTD until April 2019, and even then only to fulfill VAT obligations for businesses above the VAT threshold (then £85,000) (see this withdrawn guidance from HMRC). In other words, the first phase of MTD would apply to VAT-registered businesses over the threshold, and all other taxes (including landlord’s income tax) would come later, “not before April 2020 at the earliest” (see this withdrawn guidance from HMRC). This change gave smaller businesses and landlords at least two extra years to prepare and meant they could choose to opt in voluntarily rather than be mandated right away. The revised plan was welcomed by many as a sensible step-by-step approach.

MTD for VAT: The first phase of implementation

The MTD initiative finally went live in April 2019, focusing on VAT as the test bed. From that date, any business with taxable turnover above £85,000 (the VAT registration threshold) was required to keep digital records and file VAT returns using MTD-compatible software. Essentially, if you were a landlord company or business over the threshold, you could no longer keep your VAT records purely on paper or submit VAT returns by typing figures into HMRC’s website manually – it had to be done via approved software that links to HMRC. (HMRC noted that even before MTD, the vast majority of VAT returns were already filed online, so this was building on an existing trend.)

MTD for VAT proved to be a learning experience for both taxpayers and HMRC. There was a “soft landing” period with fewer penalties in the first year to let people get used to the new system (see comment from the then Treasury Minister). Over time, HMRC expanded the scope. By April 2022, MTD for VAT became mandatory for all VAT-registered businesses, including those below the £85,000 threshold. This meant even small landlords or businesses registered for VAT (perhaps voluntarily) had to join MTD for VAT from that point. According to HMRC, this rollout has been successful – MTD for VAT is already in place and demonstrating benefits for businesses and the tax system in terms of fewer errors and more efficient tax collection. For landlords who are VAT-registered (for example, those with commercial property rentals that elected to charge VAT), this phase may have already impacted you. But the majority of landlords were waiting to see how MTD would affect Income Tax Self Assessment, which is the system landlords use to report rental income annually.

MTD for Income Tax (IT): What it means for landlords

After VAT, the big next step for HMRC is Making Tax Digital for Income Tax Self Assessment (MTD for ITSA, now MTD for IT) – this is the part of MTD that directly affects landlords. Instead of doing one tax return each year for your rental income, MTD for ITSA will require you to send HMRC updates every quarter (every three months) on your income and expenses, using approved software, and then a final year-end summary to finish off your tax year. The idea is to integrate tax into day-to-day record-keeping and give taxpayers a clearer picture of their tax bill during the year. In fact, under MTD the traditional annual tax return will eventually be replaced by this system of frequent updates and a year-end declaration (see the government’s phased mandation news story).

However, the journey to implement MTD for Income Tax has been bumpy. Initially, HMRC intended to bring landlords and sole traders into MTD quite early. At one point, the plan was that from April 2024 any landlord or self-employed person with over £10,000 in annual business or property income would be required to use MTD for Income Tax. This looming April 2024 deadline (and the low £10k threshold) caused a lot of anxiety. Many landlords and accountants geared up for that change – some even started using software early to get ready. Then came another delay. In late 2022, the government acknowledged that the timeline was too challenging, given other pressures. A written statement on 19 December 2022 announced that MTD for ITSA would be pushed back to 2026, with a phased introduction based on income level . This was a significant shift, effectively giving affected taxpayers two more years to prepare.

Under the new phased schedule, MTD for Income Tax will kick in from April 2026 for self-employed individuals and landlords with annual income above £50,000 . Then in April 2027, it will extend to those earning above £30,000 per year from self-employment or property . If your total business and property income is £30,000 or below, you will not be mandated to join MTD at that stage – the government is reviewing how and whether to bring smaller income groups into MTD after 2027, however HMRC has hinted that eventually those with income over £20,000 might be included later, and whilst no date is set for that yet, the trend indicates 2028. Most ordinary landlords will fall into the £30,000 or below category, meaning compulsory MTD is a few years off or potentially longer. Meanwhile, landlords with larger portfolios (earning over £50k) will be the first who must comply from April 2026.

The bottom line: as a landlord, you should know which group you’re in. If your gross rental income (plus any other business income) is over £50k, MTD is coming up soon for you in 2026. If it’s between £30k–£50k, you have an extra year until 2027. If it’s below £30k, you’re not required to switch to MTD yet, though you could choose to opt in earlier. It’s also worth noting that general partnerships (landlords who own property in a traditional partnership) were initially going to be included by 2025, but HMRC has delayed that indefinitely for now (see HMRC’s phased announcement). So the first waves of MTD for ITSA focus on individual landlords and sole traders.

Under MTD for Income Tax, once you are mandated, you will need to keep digital records of your rental income and expenses using accounting software. Every quarter, you’ll send a summary of your income and expenses to HMRC through that software. HMRC will provide an estimated tax calculation based on these updates to help you budget for your tax bill. At the end of the tax year, you will make any final adjustments and submit an End of Period Statement (plus a Final Declaration to replace the old tax return) to confirm all your income. This new system is quite a change from the old once-a-year routine, but it aims to make tax more transparent and less prone to last-minute stress.

Challenges, delays, and reactions to MTD

It’s fair to say that Making Tax Digital has had a mixed reception among accountants and landlords. The idea of simplifying tax is welcome, but the practical challenges have caused frustration. One major issue has been the changing timeline – the goalposts have moved several times. Many landlords prepared for the 2024 start (with the £10k income threshold) and invested time and money in new software or procedures, only for the government to postpone the requirement. While everyone appreciates having more time, constant delays created confusion about when (and if) MTD would actually happen for income tax. Accountants, in particular, have had to keep updating their clients and adjusting plans. This uncertainty has been frustrating for professionals trying to help taxpayers get ready.

Another concern has been the cost and complexity of complying with MTD. Unlike filing a simple tax return on paper or via HMRC’s free online service, MTD requires using commercial software. Landlords will likely need to purchase MTD-compatible accounting software or apps, or pay an accountant who has the software, to submit the quarterly updates. This is an added expense, especially for those with just one or two rental properties. An advisory firm’s analysis found that MTD could increase the administrative burden for landlords, effectively adding “stealth” costs to the process of letting property – however times have changed, and software like Hammock solves any burden or pricing worries. New software subscriptions and possibly higher accounting fees make the prospect of MTD less appealing. In addition, there will be four filing deadlines per year for updates (plus one final annual filing) instead of one tax return deadline – some landlords worry this means more chances to miss a deadline or make a mistake if they’re not careful.

Business groups and professional bodies have voiced concerns as well. Surveys have indicated a significant number of small businesses (including property owners) are not fully prepared and are worried about the change – for instance, about one-third of small firms in one poll were concerned about the financial burden of MTD compliance and the changes to their operations . There are also ongoing conversations about digital exclusion: not all landlords are tech-savvy or have reliable internet access, especially older landlords. HMRC has promised exemptions for those who truly cannot go digital, for reasons such as disability or remote location, but the process to claim exemption may itself require effort.

With all that said, there is a positive side to remember. The government isn’t making these changes just to complicate life – there are real upsides to digital tax management. HMRC estimates that errors in tax returns (like arithmetic mistakes or lost receipts) cost the Exchequer billions in unpaid taxes; by keeping records digitally and updating regularly, a lot of those errors can be reduced. In fact, HMRC highlights that MTD can help taxpayers “eliminate common errors and save time managing their tax affairs”. From a landlord’s perspective, using software to track income and expenses throughout the year might actually make the process more streamlined – you won’t have that annual scramble to compile everything for your tax return, since it will already be in the system. Some early adopters have found that it forces them to be more organized with their bookkeeping, which isn’t a bad thing. And once you get used to the quarter-by-quarter routine, it could spread out the work rather than a last-minute rush in January. HMRC also gave more time (delaying to 2026) specifically because they recognized how significant this change is and that the current economic climate is challenging . The phased approach is meant to ensure a smoother transition, with larger businesses and landlords going first and smaller ones later, so that software providers and HMRC’s systems can handle things properly. In short, while MTD has been a headache at times, it’s a project that aims to bring tax into the 21st century. By acknowledging the teething problems and giving extra time, the hope is that landlords and their accountants can gradually adapt and eventually even come to appreciate the more up-to-date system.

How landlords can prepare for MTD (Compliance tips)

Finally, let’s look at some practical tips for landlords to handle Making Tax Digital. The key to coping with MTD is preparation and understanding what’s required. Here are some steps and suggestions to make the transition easier:

• Know your start date: Figure out when you will need to join MTD for Income Tax. This depends on your income – you can use our handy calculator. If your total self-employment and/or property income is over £50,000, you’ll be in the first group starting 6 April 2026. If it’s over £30,000 (but not above £50k), you’ll start from 6 April 2027 . Those below £30k annual income won’t be mandated just yet. It’s wise to use HMRC’s online checker tool to see if and when MTD will apply to you . Mark your calendar for the relevant date so it doesn’t catch you off guard.
• Choose MTD-compatible software early: Moving to digital record-keeping is much easier if you have the right tools. Take time to find an MTD-compatible software that suits your needs and budget – HMRC provides a list of software that works with MTD for Income Tax on the GOV.UK website . There are many options, from simple free apps to full accounting packages. Research and pick one that you feel comfortable with (you might try a few demos). Start using the software as soon as possible, even before it’s mandatory. For example, you could begin tracking your rent income and expenses digitally for practice. This way, by the time you must use it, you’ll already know the ropes.
• Keep digital records regularly: Get into the habit of recording your rental income and expenses on an ongoing basis (monthly or weekly). Scan or photograph receipts and invoices, and enter them into your chosen software. MTD will require quarterly updates, so maintaining your records continuously will make those quarterly submissions straightforward. It may help to set aside a regular time (for instance, an hour each month) to update your books. Treat it as a routine part of managing your property business.
• Consider voluntary sign-up: If you’re keen to see how MTD works in practice, you can opt to join the MTD for Income Tax system voluntarily before the mandatory date. HMRC is running a pilot (testing program) that eligible taxpayers can sign up for now through your software provider – Hammock can help. Joining early is not compulsory, but it can be beneficial: you’ll gain first-hand experience with the process and software, and any feedback you provide could help HMRC improve the system. Some landlords prefer to “go live” early so that they aren’t scrambling at the last minute. If that sounds like you, check out HMRC’s guidance on how to sign up for MTD voluntarily (the sign-up is done through your Government Gateway account) . Remember that if it doesn’t work out, you can always stop and wait until it’s required.
• Get advice and training: Don’t hesitate to seek help. Talk to your accountant or tax adviser about MTD – most accountants have been preparing for this for years now. They can guide you on software choices and record-keeping practices, or even handle the quarterly submissions on your behalf if you prefer (for a fee). If you do your taxes yourself, make use of HMRC’s support resources. HMRC regularly offers webinars, tutorial videos, and written guidance for MTD. These can walk you through everything from signing up, to using software, to submitting updates. Taking an hour to watch a webinar or read the official step-by-step guide can boost your confidence and ensure you’re doing things correctly.
• Stay informed on updates: As we’ve seen, the MTD timetable has changed before – and while the government insists the 2026 date will stick, it’s smart to stay informed. Keep an eye on official HMRC announcements on GOV.UK regarding MTD. Any changes to deadlines, thresholds, or rules will be posted there. You might also subscribe to newsletters from landlord associations or accounting bodies, as they often translate HMRC updates into plain English. By staying up to date, you won’t be caught by surprise if there are further adjustments or when your turn to join MTD arrives.

By following these tips, landlords can turn the Making Tax Digital changes from a source of stress into something manageable. Yes, it requires an adjustment in how you handle your taxes, and there may be some costs and learning curve involved. But with preparation and the right support, you’ll be able to comply with MTD and maybe even find it improves the way you organize your finances. The transition may be challenging, but it’s also an opportunity to modernize your bookkeeping and ensure you’re keeping on top of your rental business’s performance throughout the year. HMRC’s move to digital is coming – but with the above steps, you’ll be ready to make a smooth and positive transition to the new system when the time comes.