The most significant change to personal tax administration in nearly three decades is on its way and it will affect thousands of Yorkshire’s sole traders and landlords. Making Tax Digital (MTD) for income tax, which becomes mandatory for many from April 2026, represents a major shift in how income is recorded and reported.
From this April, anyone with combined sole trade and property income of over £50,000 will be required to keep digital records and submit quarterly updates using HMRC approved software. The threshold will fall to £30,000 in April 2027 and £20,000 in April 2028, bringing many more small Yorkshire enterprises into scope.
The awareness gap could hit some Yorkshire businesses hard as, despite the scale of these changes, many remain unaware of what’s coming. One survey found that nearly 40% of sole traders had “never heard of” MTD, and only a third said they clearly understood what will be required. This lack of readiness could disproportionately affect Yorkshire, where micro businesses and sole traders make up a large part of the local economy and many operate without dedicated accounting support.
HMRC has begun issuing letters to affected taxpayers, though some may not receive them until April so there is the potential some businesses will be on the backfoot from the start. Exemptions will be available for those who are digitally excluded for reasons such as age, disability, remote location or religion. Other exemptions are available but only in limited circumstances. To support the transition HMRC, acknowledging expected teething problems, has confirmed there will be no penalties for late quarterly submissions during 2026–27.
The annual self assessment tax return will effectively be replaced by a more frequent reporting cycle for those within MTD income tax. To comply with the new MTD regulations, affected sole traders and landlords will need to:
- Keep digital records of all business income and expenses
- Submit quarterly summaries of those income and expenses to HMRC (deadlines: 7 August, 7 November, 7 February, 7 May)
- Complete a final tax return that also includes their other income sources and gains by 31 January after the tax year.
Taxpayers are also expected to use software from an HMRC recognised list to submit the quarterly summaries and their end of year tax return. While some free options exist, most firms will likely need to pay for their chosen product. Different software products have different features and support different income types, so it is important for taxpayers to choose a product that meets their needs. For those unfamiliar with digital accounting, a learning curve is inevitable, and mistakes may be more common in the early months. It is also not yet confirmed whether software costs will be tax deductible, which could affect smaller firms’ budgets.
There are some criteria that may catch people out. Eligibility is based on gross income, not profit, which may be confusing for landlords and small traders. Those who start trading mid‑year or use non‑standard accounting periods will need to annualise their income to determine whether they fall within scope. Capital gains from property sales must still be reported separately within 60 days and this remains outside the MTD income tax system.
At the Institute of Chartered Accountants England and Wales (ICAEW), we are encouraging firms and taxpayers to act now rather than wait for deadlines to loom. Practical steps include: assessing whether your income level will bring you into scope; speaking with a chartered accountant for tailored guidance; trialling MTD‑compatible software; and training staff or family members involved in record‑keeping. Early preparation is the best way to avoid last‑minute issues.
Digitalisation promises long‑term benefits through reduced errors and improved compliance. But many experts believe the administrative load and added costs may outweigh the benefits for the smallest firms, particularly in regions like Yorkshire where digital adoption varies widely. MTD is coming, and its impact will be felt across our region. By preparing now, sole traders, landlords and small businesses can protect themselves from disruption and ensure they remain compliant as the tax system moves firmly into the digital age.