In April 2026, the UK witnessed the roll out of the MTD for Income Tax mandate, the biggest tax overhaul in 30 years.
The first phase covered sole traders and landlords with annual qualifying gross income over £50,000 in the 2024–25 tax year. The mandate was followed by the first quarterly update submission on 7 August, which saw 436K submissions out of the 570K signups from a total of over 864K eligible taxpayers.
Following the first quarterly update, HMRC made two announcements:
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From September 2026, HMRC will automatically sign up taxpayers who have not signed up yet.
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Taxpayers who have not submitted the first quarterly update on 7 August, can continue to submit now and there will be no penalties for late updates this year.
What does this mean for you and your clients?
Auto-sign up
The proactive signing up for MTD for Income Tax by HMRC is set to happen in phases. As a bookkeeper, if you have clients who haven't signed up yet, it is important to inform your clients to watch out for the letter or digital message from HMRC regarding sign up since the taxpayer will be receiving it and not you. Once your clients receive this message, they need to login to their online tax account and check the records HMRC holds.
It is important to inform HMRC if any source of income has ended or if there are any additional ones since the sources are based on the 2024–25 tax year.
HMRC highly encourages you to sign your clients up for MTD for Income Tax as early as possible instead of waiting for the letter. This gives you and your clients a head start with MTD by providing the correct details, giving you full control of your MTD journey.
Early sign up also means your clients have time to catch up with their digital record-keeping habit and prepare for the second quarterly update on 7 November.
Penalties
Since it's the first year of MTD for Income Tax, HMRC announced that there will be no penalties for late updates for the 2026–27 period. However, if there are late tax returns and payments, your clients will incur penalties and fines.
Signing up now is definitely a good way to encourage clients to get into the habit of maintaining records, since the second cohort of sole traders and landlords will not have the benefits of the easing-in period.
There are a few things to know about this:
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Your clients' MTD for Income Tax obligation does not disappear. Your clients still need to file their tax return and tax returns can be generated only if quarterly updates have been submitted.
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Late year-end submissions will still attract a penalty point.
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Late payments will still incur penalty points and interest. However, clients who are in the first year of the new penalty system will have 30 days instead of 15 days before the penalties apply.
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After the first year, clients will have a 15-day period.
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If your client had volunteered and now required to comply with MTD for Income Tax, the 15-day period will continue to apply.
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The penalty waiver is not applicable for the next cohort when the MTD scope expands.
How can you prepare your practice and clients?
Being proactive is the key to ensure clients stay compliant with MTD for Income Tax. Get ahead and start finding the list of clients who need to comply and sign them up with HRMC as soon as possible. This gives them time to catch up with the second quarterly update on 7 November, since the updates are cumulative.
Once signed up with HRMC, sign up for HMRC-recognised accounting software like Zoho Books which is completely free for sole traders and landlords. It offers end-to-end MTD for Income Tax compliance, from maintaining digital records to quarterly updates and final tax return submissions directly to HMRC.
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Connect Zoho Books to HMRC.
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Link your client's bank account or credit card with Zoho Books to fetch live bank feeds into Zoho Books.
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Use the Zoho Books mobile app to upload receipts and bills. In this way, expenses are tracked and records stay up to date.
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If your client sends out invoices for their business, the free plan of Zoho Books covers 1,000 invoices.
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Review income and expenses weekly to ensure categorisation and reconciliation is done often instead of waiting until the deadline.
MTD for Income Tax compliance doesn't have to be a burden. The first year with ease-in penalties and payment grace periods offers practice firms the ability to test, review, and shape processes for the future as the scope expands.