MTD for Income Tax: auto-enrolment, penalties and getting ahead

The first quarterly deadline for Making Tax Digital for Income Tax (MTD for IT) has been and gone. On 7 August, hundreds of thousands of sole traders and landlords earning over £50,000 in qualifying income sent their first digital update to HMRC.

The numbers are worth looking at. Of the roughly 864,000 taxpayers expected to have to comply from April 2026, more than 570,000 have signed up and over 436,000 filed that first update. That’s a lot of change absorbed in a single quarter, and it didn’t happen by accident. 

Accountants and bookkeepers have spent the past year cleaning up records, updating their services and guiding clients through a brand new process. Our own research earlier this year found two in five sole traders and landlords didn’t feel ready — so the fact that so many have now filed is a real credit to this community.

But MTD for IT doesn’t end there. There are still a lot of businesses that haven’t signed-up for tax year 2026/27 and should have, and the quarterly and end of year submissions continue. So what happens next?

HMRC will start signing people up from September

HMRC has confirmed that from September 2026 it will start signing up taxpayers who were mandated from April but haven’t registered themselves yet, in stages over the following months.

If this applies to you as a small business or to your clients if you’re an accountant, there’s no need to panic. Being signed up isn’t a black mark — it simply puts you into the MTD system and onto the first step of getting going with MTD. Anyone signed up this way will receive a letter or digital message to their online tax account, depending on their contact preferences, explaining what it means and what to do next. Please note, this will go to the taxpayer only, not the accountant or bookkeeper.

There’s one action to take when that arrives: log into your online tax tax account and check and confirm the records HMRC has are correct. The income sources will be based on the 2024/25 tax return so you’ll need to tell HMRC if any of those income streams have ceased or if there are any new ones. Then link your HMRC-recognised software, like Xero, to your HMRC account.

Don’t wait to be enrolled, get ahead now

Here’s my main message: whether you’re an advisor or running your own business, don’t wait to be auto-enrolled by HMRC.

If you’re an accountant or bookkeeper, take a look through your client list now and see who hasn’t signed up. This gives you the opportunity to get them signed up now based on the correct information and not have to go through the process of checking and correcting HMRCs outdated sign up information.  Signing up now also gives you and your clients a head start on catching up with digital record keeping for quarter one, ahead of the quarter two submission deadline on 7th November.

If you’re a sole trader or landlord who hasn’t started, the first steps are simple:

1. Sign up for MTD for Income Tax with HMRC, and connect your HMRC-recognised software to your HMRC account.
2. Separate your personal and business finances, then connect your business bank feed so income and spending flow in automatically.
3. Review and create digital records of transactions little and often. Capture receipts, invoices and rental statements as you go, not in the week before a deadline. Tools like Smart Document Capture can scan documents and pre-fill your records.
4. If you work with an accountant or bookkeeper, agree who does what.

The remaining deadlines this year are 7 November 2026, 7 February 2027 and 7 May 2027. Put them in your calendar now.

Understanding the soft landing period

The next thing worth being clear on is penalties. For 2026/27, HMRC is applying a first-year soft landing: no penalty points for late quarterly updates. If you’re late with one, two or even all four of this year’s updates, you won’t pick up points. Points for quarterly updates start from 2027/28, when four of them will trigger a £200 penalty (check out our small business and accounting penalty guides).

The caveats matter, though:

• The obligation hasn’t gone away. The soft landing removes the penalty point, not the requirement to file, and you can’t finalise your tax return until every quarterly update is in.
• Your year-end return isn’t covered. The 2026/27 return is due by 31 January 2028 and can still attract a point if it’s late.
• Late payment isn’t covered. Penalties and interest apply in full, though a first-year easement gives 30 days rather than 15 before a penalty applies, or time to agree Time to Pay. It’s available once only.
• It’s this year only. Those joining in April 2027, when the £30,000 threshold comes in, won’t currently have a soft landing as things stand.

Good news for anyone catching up is that the quarterly updates are cumulative. Each covers 6 April to the end of the current period, so once records are up to date, the next submission picks up any period missed. No need to file the same figures twice.

Final thoughts

If you or your clients didn’t file in August, now is the time to get on the front foot. The soft landing means the cost of catching up is low, but the habits built over the next two quarters are the ones that will carry you through 2027/28, when points start building.

The businesses I speak to who’ve found MTD easiest all say the same thing, it was keeping digital records up to date week to week that made the biggest difference. That shift pays off well beyond compliance.

We have plenty of resources to help, whether you’re building an MTD-ready practice or taking a first step for your own business. Take a look at our sole trader guide here, and landlord one here.