If you’ve recently received a letter from HMRC about Making Tax Digital (MTD), you might be wondering what it means for you. Many landlords across the UK are receiving the same notice, and it’s normal to feel confused or overwhelmed.
You may be asking yourself whether you need to act immediately, if new software is required, or how this will change the way you report and pay taxes. While these changes can feel daunting at first, the process is manageable once you understand HMRC’s expectations.
This guide will walk you through everything you need to know. We’ll explain who must comply and when, highlight the key deadlines, and provide clear steps to get fully compliant. By following this guidance, you can stay on top of your obligations and focus on managing your properties without unnecessary stress.
What the MTD Letter Means and What It Triggers
Receiving a Making Tax Digital letter from HMRC can be unsettling, especially if it’s your first time seeing one. The letter usually states that you will need to change the way you report your income and expenses. Understanding why you received it and what it means for your tax position can significantly reduce stress.
The MTD letter is sent to landlords whose total income from property and self-employment exceeded £50,000 in the 2024–2025 tax year. This figure, known as your “qualifying income,” is calculated before expenses or taxes are deducted. It’s important to note that this amount is based on your gross income, not your profit, and it determines whether MTD applies to you.
The letter is not a tax demand or an investigation. Instead, it’s a compliance notice to make you aware that your reporting method and obligations are changing. HMRC requires that you report your income and expenses digitally four times per year, keep digital records throughout the year, and use HMRC-recognised software. If you prefer, you can appoint an accountant or agent to handle this on your behalf, ensuring your submissions are accurate and on time.
How Making Tax Digital Changes the Way Landlords File Tax Returns
Making Tax Digital for Income Tax introduces the most significant change to how landlords report their finances to HMRC in decades. It replaces the traditional once-a-year Self Assessment Tax Return with ongoing, quarterly reporting supported by digital records.
For landlords, this isn’t just about using new software. It fundamentally changes the way you track your income and expenses throughout the year. Instead of compiling everything at the end of the tax year, you will now maintain digital records continuously and submit updates to HMRC every quarter.
Under the current system, landlords file one annual Self Assessment Tax Return due on 31 January. With MTD, you will submit four quarterly updates followed by a Final Declaration at the end of the tax year. While the annual system calculates your tax once a year, MTD provides HMRC with a running picture of your income as the year progresses.
If you work with an accountant, they can manage your MTD submissions for you. This ensures that your quarterly updates and Final Declaration are accurate, submitted on time, and compliant with HMRC requirements, even if you reside outside the UK.
What Does Qualifying Income Mean for Landlords
One of the most important things to understand from your MTD letter is what HMRC means by “qualifying income.” Many landlords confuse this with their taxable profit, but it’s actually your total gross income from property and self-employment combined, before any expenses, allowances, or deductions are applied.
Qualifying income includes rental income from buy-to-let properties, holiday lets, Airbnb, serviced accommodation, and self-employment income as a sole trader. It does not include PAYE salary, pension income, dividends, savings interest, or capital gains from property sales.
For example, a landlord earning £38,000 from rental properties and £14,000 from a self-employed consultancy would have a qualifying income of £52,000. Even if the profit after expenses is much lower, this total brings them above the £50,000 MTD threshold, meaning they must comply.
It’s also important to note that the MTD threshold will drop over the coming years. The threshold is £50,000 from 6 April 2026, £30,000 from 6 April 2027, and £20,000 from 6 April 2028. Even if you are below the current threshold, you could be required to comply in a future tax year.
New Quarterly Update Obligations Under Making Tax Digital
The most noticeable change MTD introduces for landlords is the requirement to submit four quarterly updates to HMRC each tax year. These updates replace the single annual Self Assessment return and give HMRC a running picture of your income throughout the year.
Each quarterly update summarises your property income and expenses and includes all figures from previous quarters. This means HMRC can see a cumulative total as the year progresses. Even if you have no activity in a particular quarter, you must still submit a nil return. Failing to do so carries the same penalty risk as missing a quarter with active income.
After completing the four quarterly updates, you must submit a Final Declaration, which acts like the Self Assessment Tax Return for the year. This is the point where your tax liability is calculated and confirmed.
Many landlords choose to delegate these quarterly submissions to an accountant. This approach ensures that all updates are accurate, submitted on time, and compliant with HMRC’s requirements, while allowing you to focus on managing your properties rather than tracking deadlines.
MTD Penalty System
The MTD letter introduces two new types of penalties for landlords: late submission penalties and late payment penalties. Both are designed to encourage timely reporting and payment, but they work independently of each other.
Late submission penalties are calculated using a points system. You earn a penalty point each time you miss a quarterly update or Final Declaration deadline. If you reach four points for quarterly update and two points for final declaration, HMRC will issue a financial penalty. However, these points are not permanent and can be reset once you demonstrate a period of on-time filing.
For the first year of MTD implementation, the 2026–2027 tax year, HMRC has introduced a soft landing period. During this time, no penalty points will be issued for late quarterly updates. Despite this, all updates must still be submitted before you can file your Final Declaration. From the 2027–2028 tax year onwards, the full penalty regime will apply.
Late payment penalties are separate and are based on how long it takes you to pay any tax owed. There is no soft landing for late payments so that these penalties will apply from the 2026–2027 tax year itself. Small delays of 0–15 days do not trigger an automatic penalty, but interest will accrue. Payments 16–30 days late incur a 3% penalty, and payments 31 days or more late incur a 3% penalty plus a daily rate until the tax is paid.
Even if you file all quarterly updates and your Final Declaration on time, you could still face penalties if your tax payment is late. Understanding this system early is key to avoiding unnecessary fines and staying fully compliant.
Should Landlords Continue to File Their Self Assessment Tax Returns?
Yes. Receiving an MTD letter does not replace your existing Self Assessment obligations. For example, landlords must still submit their 2025–2026 Self Assessment Tax Return as usual by 31 January 2027. HMRC will apply financial penalties if these returns or payments are submitted or paid late.
MTD only governs reporting fom the 2026–2027 tax year onwards. Think of 6 April 2026 as the start of the new system, running in parallel with the old Self Assessment method until the 2025–2026 tax year ends. Submitting your Self Assessment for the 2025–2026 tax year ensures you remain compliant while preparing for MTD obligations.
Continuing to file your Self Assessment return on time also allows HMRC to reconcile previous tax years and prevents any unnecessary complications as the new digital reporting system is introduced.
MTD Exemptions – Who Qualifies and How to Apply
Not all landlords are required to comply with Making Tax Digital. HMRC provides certain exemptions, and it’s important to understand if any apply to you. One of the main exemptions is digital exclusion. This applies if using digital tools is not reasonably practicable due to factors such as age, disability, remote location, or religious belief. If you believe you qualify for digital exclusion but have not applied, you can submit an application to HMRC. Exemptions may be granted either permanently or on a review basis.
Other grounds for exemption include situations where your qualifying income falls below the applicable MTD thresholds, which will be £50,000 for 2026, £30,000 for 2027, and £20,000 for 2028. Landlords who are ceasing self-employment or property letting in the relevant tax year may also qualify, as well as those without a National Insurance number before the tax year starts. Certain trustees, personal representatives, or individuals in specific legal circumstances may also be eligible.
If you are unsure whether MTD applies to you, it is essential not to remain uncertain. Tools like HMRC’s Making Tax Digital calculator can help you check your eligibility quickly, determine your compliance start date, and identify your quarterly deadlines. Consulting with an accountant or tax adviser can also help confirm whether you qualify for any exemptions and guide you through the application process if needed.
MTD Action Plan – Here’s What You Should Do
If you’ve received an MTD letter, it’s important to take action now to ensure you are ready by 6 April 2026. The first step is to seek specialist advice. An MTD-focused accountant or tax adviser can confirm how the rules apply to your situation, particularly if you have income from multiple sources, properties in different ownership structures, or are near the qualifying income threshold. They can also advise whether any exemptions apply and help you plan the most efficient way to manage your reporting.
Next, you need to register for Making Tax Digital for Income Tax if your combined gross income from property and self-employment exceeded £50,000 in the 2024–2025 tax year. Registration is done via GOV.UK, and if you have an accountant, they can often manage this process on your behalf. Once registered, you will need HMRC-recognised software to submit your quarterly updates and Final Declaration. HMRC will no longer accept paper or portal submissions for landlords subject to MTD.
Choosing the right software is critical. For UK landlords, using software specifically designed to handle property income and expenses, submit quarterly updates, and simplify the Final Declaration process are recommended.
Finally, begin keeping digital records immediately. Don’t wait until April 2026. The sooner your income and expenses are organised digitally, the smoother your first quarterly submission will be. Starting early also reduces the risk of errors and ensures that you meet all deadlines confidently.
MTD Timeline for Landlords: Key Dates and Deadlines
Conclusion
Receiving a Making Tax Digital letter from HMRC can feel overwhelming, but understanding what it means and taking proactive steps can make the transition smooth and stress-free. Landlords must prepare to submit quarterly updates, maintain digital records, and use HMRC-recognised software to stay compliant.
Starting early, seeking specialist advice, and ensuring your records are properly organised will not only help you avoid penalties but also give you a clearer, real-time picture of your property income. Remember, MTD is a change in the reporting process, not a tax demand. With the right preparation and guidance, you can continue managing your properties efficiently while meeting all HMRC requirements.
Being informed and proactive is the best way to navigate this new system and ensure your compliance for the years ahead.
