HMRC has alerted 864,000 taxpayers about a new tax system implementation with a two-week notice period. The new system, known as Making Tax Digital, requires digital reporting of income tax. It became compulsory in April 2026 for sole traders and landlords earning over £50,000.
Under this new process, taxpayers must provide quarterly updates on their income and expenses, with the first update deadline set for August 7. These updates must be submitted using HMRC-approved software. Following each update, an estimated tax bill will be generated, and taxpayers still need to file a tax return by January 31 as usual.
There is a deadline of January 31 for paying any outstanding tax owed, with penalties for missing deadlines based on a points system. Each missed submission earns one point, and a £200 fine is imposed upon reaching four points for quarterly submissions.
Accrued penalty points expire after 24 months of compliance. Currently, there is a 12-month grace period for the initial year of Making Tax Digital, during which no penalty points will be issued for late quarterly updates.
For late submission of self-assessment tax returns under the existing rules, a £100 immediate fine is levied. The self-assessment deadline remains January 31.
Making Tax Digital will be progressively extended to individuals earning over £30,000 from April 2027 and over £20,000 from April 2028. VAT-registered businesses have been mandated to adopt Making Tax Digital for VAT purposes since 2022.
Craig Ogilvie, HMRC’s Director of Making Tax Digital, described the current phase as a pivotal moment for the tax system. He emphasized the importance of digital record-keeping and encouraged those not yet signed up to visit GOV.UK and search ‘Making Tax Digital for Income Tax’ to begin the process.