From 6 April 2026, Making Tax Digital for Income Tax became mandatory for the first group of landlords and sole traders. Over the next two tax years, the new rules, together with the reformed penalty system for late filing and late payment, will extend to many more property owners.

Any landlord who has not yet checked whether the new rules apply to them should do so without delay. The thresholds are set by reference to gross income rather than profit, so a landlord whose rental business makes only a modest profit, or even a loss, can still find themselves within scope.

 

For a confidential free discussion, call us today on 01908 538294,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

The obligation to report property income

Rental income has always been reportable to HMRC. Anyone letting property, whether a buy-to-let, a holiday let, a room in their own home above the relevant relief limits, or a property advertised on a short-term letting platform like Airbnb generally has to notify HMRC and report the income through Self-Assessment.

Following the changes, a landlord subject to Making Tax Digital must now keep digital records of their income and expenses using compatible software, send HMRC a quarterly update, and file a final annual declaration confirming the overall position and any reliefs claimed. Each quarterly update is a summary of income and expenses to date. No tax is payable on submission of an update, but the updates must be filed on time and the final declaration cannot be filed until all of them are submitted.

The standard quarterly deadlines are 7 August, 7 November, 7 February and 7 May. The final declaration remains due by 31 January following the end of the relevant tax year, in line with the Self-Assessment deadline.

 

Who is within scope?

The regime is being phased in by reference to what HMRC calls ‘qualifying income’, meaning combined gross income from self-employment and property before deducting any expenses.

The first phase, which commenced on 6 April 2026, covers unincorporated landlords and sole traders whose qualifying income exceeded £50,000 in the 2024 to 2025 tax year. The threshold drops to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028. The Government has said it will look at how to bring taxpayers below £20,000 into digital reporting in due course, but no date has been set.

Qualifying income is based on gross receipts, not profit. Income sources are added together, so a landlord with £35,000 of rent and £20,000 of self-employment income is over the £50,000 threshold.

 

Penalties for late submission

Late submissions are dealt with under a points-based system. A missed deadline attracts one penalty point, and when a mandated taxpayer reaches four points, HMRC charges a £200 penalty, with every missed deadline after that costing a further £200. A taxpayer can only receive one point per deadline, even if they run more than one business and file more than one update. Points expire after twenty-four months provided the taxpayer stays below the threshold. Once the threshold has been reached, however, the slate is only wiped clean after a sustained period of full compliance.

There are transitional provisions for the first year. HMRC will not issue penalty points for late quarterly updates during the 2026 to 2027 tax year, although the updates still have to be filed before the final declaration can go in, and the transition does not cover the final declaration itself. From 6 April 2027, the reformed penalty regime extends to all Self-Assessment taxpayers, not just those within Making Tax Digital.

 

Penalties and interest for late payment

HMRC charges penalties on unpaid tax at rates set out below. Note that in a taxpayer’s first year under the new regime, no first late payment penalty is charged where the tax is paid in full, or a payment plan is agreed, within thirty days of the due date.

The penalties are:

  • 3% of the outstanding amount where tax remains unpaid fifteen days after it fell due.
  • A further 3% of the outstanding amount where tax is still unpaid at day thirty.
  • A second penalty from day thirty-one, accruing daily at an annualised rate of 10% of the outstanding balance until payment is made.

In addition, late payment interest is charged from the original due date at a rate linked to the Bank of England base rate. Where a taxpayer cannot pay in full, a Time to Pay arrangement agreed with HMRC can sometimes be used to prevent further late payment penalties from accruing.

Separate penalties can be imposed for failing to keep the required digital records, and the longstanding penalty regime for inaccuracies in returns continues to apply. A careless or deliberate error in a quarterly update or final declaration can attract additional penalties.

 

What landlords should do now

To begin with, landlords need to work out whether their gross property and self-employment income brings them within the 2026, 2027 or 2028 phase. They must then acquire compatible software and put proper record-keeping in place well before the relevant start date.

 

Speak to our team

If you need advice on any aspect of Making Tax Digital, our tax disputes team can help.  Please contact us to arrange an initial discussion in confidence.

 

For a confidential free discussion, call us today on 01908 538294,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.