The creation of Digital Tax Letters has landed

Making Tax Digital (MTD) letters come into force: What landlords and sole traders earning more than £50k per year need to know

The second round of letters was issued by HMRC to individuals whose latest tax returns showed that their combined business and property income was at or above £50,000.

The aim is to provide early warning that starting April 6 2026, taxpayers are expected to switch to Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA).

Doesn’t really roll off the tongue, does it?

MTD has been employing accountants for several years, since it was first announced in the March 2015 budget. Yes, you heard that right, almost 11 years ago.

But what does this really mean, and will it be a headache or a blessing for taxpayers and their advisors?

In practice, MTD means the once-a-year return of Self-Assessments is gradually being replaced by digital record-keeping and regular online reporting.

Rather than collecting figures once a year at the end of the tax year, taxpayers who fall within the scope of MTD need to keep their records in HMRC-compatible software and submit quarterly updates showing income and expenditure over time.

At the end of the year, there will still be a final declaration to confirm the total amount and make adjustments.

This means, of course, that the days of completely paper-based systems or spreadsheets created at the last minute may soon be numbered.

HMRC said the move was designed to reduce errors and provide taxpayers with a clearer and more up-to-date picture of their tax position. In theory, this could help many people plan and manage cash flow better, but for many landlords and sole traders it represents a major operational change rather than a simple change and at the moment it may feel a little daunting. And let’s be honest even if it took HMRC almost 11 years to roll out, there would definitely be major problems. At ETC Tax we regularly work with accountants, many of whom still don’t understand some of the day-to-day practices; practicalities that will only become apparent when people start applying.

So, when exactly does MTD apply?

From April 2026, MTD applies if qualifying income, (i.e. gross turnover from self-employment and property before expenses), exceeding £50,000.

(In April 2027, the threshold is scheduled to fall to £30,000, with a further reduction to £20,000 planned for April 2028).

This means that this doesn’t just apply to large rental portfolios or high-income consultants. Someone with a modest trade and/or a few rental properties can easily fall within MTD especially once the lower threshold is implemented.

So why the letter now?

HMRC uses information from the latest tax returns to identify people who may be affected.

The aim is to provide advance notice to the public.

This is important as the image below shows:

• A recent industry survey found that only about 46% of respondents said they were aware or very aware of MTD for income tax, indicating that most respondents are still completely unaware of it ahead of its launch in April 2026.
• Specific research among sole traders in the UK shows around 31% admitted that they had never heard of MTD at all.
• Another survey went further and showed that as many as 70% had never heard of MTD or were unaware that MTD required digital record-keeping and submission of quarterly reports.

So, what’s the takeaway here? Initially, the key is that even if you feel your income will fall below the limit by the time April 2026 rolls around, receiving a letter is a signal that HMRC believes you. Can is within the scope of MTD and therefore it is worth checking your position carefully.

It’s also important to remember that qualifying income is looked at in total. Rental profits and trading income are added together, which can attract people’s attention if they only focus on one source of income.

What should you do if one of these letters lands on your doormat?

First, review your numbers. Look at your latest tax return and any estimates to see whether your combined turnover is likely to exceed the £50,000 threshold in 2026/27.

Next, think about systems. If you’re still relying on spreadsheets or paper records, you’ll need to switch to software that can keep digital records and connect directly with HMRC for submissions. It needs to be done quickly.

Most importantly, talk to an advisor immediately. Preparing for quarterly reporting takes time, workflows may need to change, bookkeeping habits may need to be tightened, and software choices may need to be made.

The next step

Income Tax MTD is one of the biggest changes to individual tax compliance in years. Receiving a letter is not a reason to panic, but it is a clear indication that the way you report income will soon change.

With forward planning and the right advice, this transition shouldn’t feel difficult, and can even provide better visibility into your tax position throughout the process.

If you are unsure whether you might be caught out by the new rules or you feel your tax affairs have become too complicated for you to handle, contact us and we can help.