HMRC issues update over major tax change coming in this year | Personal Finance | Finance
HMRC has shared some details about a major tax change that will affect millions of people. The tax department is gradually expanding its Making Tax Digital project, which is being rolled out from April 2026.
The tax department said the new system requiring people to keep digital records is “the biggest change” to how the self assessment system works since it was introduced in 1997. The scheme will gradually be extended to more people and you could face penalties if you do not comply with the rules. Some three million people will be in scope once the programme is fully rolled out.
Under the new programme, sole traders and landlords will need to have software in place that works with Making Tax Digital, to keep digital records of your self-employment and propery income and expenses. You will also have to send quarterly updates to HMRC and submit a tax return and pay any due tax by January 31, the following year. This is the current deadline to submit your self assessment tax return for the previous tax year.
From April 2026, sole traders and landlords with a gross income of £50,000 or more in the 2024/2025 tax year will need to sign up for the scheme. This is extending from April 2027 to those with an income of £30,000 and above for the current tax year.
The Government is planning to further extend this to those with an income of £20,000 or more for the 2026/2027 tax year. HMRC was asked what the penalties are if you do not comply with the scheme when you are supposed to.
The group said: “Customers joining Making Tax Digital in April 2026 will be subject to the new penalty reform rules if they fail to submit their tax return or pay what they owe on time. Penalty reform rules mean customers are given points for failing to submit quarterly updates or their tax return, on time.”
HMRC is also changing the late payment penalties so they are “more proportionate” to the length of time the payment is outstanding, as well as the amount that is due. However, HMRC has said that for the 2026/2027, it will not issue penalty points to customers who do not send their quarterly updates on time.
An HMRC spokesperson said: “If you’re a sole trader or landlord, Making Tax Digital for Income Tax is a major change to how you keep your self-employment and property records and report them throughout the year. It’s the biggest transformation since Self Assessment launched in 1997 and it will make your life easier. Find out more about how to prepare by visiting our guidance page.”
Sign up early
If you need to start using Making Tax Digital from April 2026, HMRC says you “should sign up before that date so you are prepared”. You can sign up before you are required to use the system, to ensure you are ready.
You can sign up and start using the system now, for the current 2025/2026 tax year. You can use compatible software to send your quarterly updates for the year so far.
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