HMRC Expands Digital Tax Reporting for Self Employed Workers

Thousands of self-employed workers and landlords in the United Kingdom face new digital tax reporting requirements as HM Revenue and Customs (HMRC) gradually expands Making Tax Digital for Income Tax. The system became mandatory on April 6, 2026, for qualifying individuals earning more than £50,000 in gross income from self-employment and property, with additional groups joining in April 2027 and April 2028. According to HMRC's published timetable, individuals whose 2024–25 Self Assessment returns showed qualifying income above £50,000 entered the system in April 2026.

Those exceeding £30,000 in the 2025–26 tax year must join from April 2027, while the threshold is scheduled to fall to more than £20,000 from April 2028, based on 2026–27 income. Qualifying income measures combined gross earnings from self-employment and property before expenses are deducted. Under the standard reporting schedule, quarterly updates are due on August 7, November 7, February 7 and May 7, according to reporting guidance published by Open Access Government and the Liverpool Echo.

Participants must maintain digital income and expense records using compatible software and submit quarterly summaries to HMRC. The updates do not replace the annual Self Assessment tax return, which remains necessary to calculate the final tax liability and report any amount owed.

HMRC guidance also clarifies how the rules apply to taxi and private-hire drivers. When an app collects a passenger's full fare and deducts commission before paying the driver, the driver must record the gross fare as income and the commission separately as a business expense. For example, a £100 fare with a £20 commission deduction must be recorded as £100 in income and £20 in expenses, rather than £80 in income. Tips, bonuses and incentives also count as income, while eligible costs such as fuel, charging, insurance, repairs, licensing fees and app charges may qualify as business expenses.

Quarterly updates contain cumulative income and allowable expense totals for each business rather than individual invoices or receipts. HMRC does not receive those individual documents through the updates, and the final tax calculation takes place when the annual return is submitted. Drivers and other self-employed taxpayers can continue using spreadsheets, but spreadsheets alone do not meet the digital submission requirements. HMRC guidance says compatible bridging software must transfer the figures to the department through an official digital connection.

Digital copies of receipts and other relevant records must be retained for at least five years after the January 31 filing deadline for the relevant tax year, according to the HMRC guidance compiled by Taxi Point. Legible digital copies may replace paper originals, provided they preserve the necessary information. HMRC also allows quarterly reporting errors to be corrected through an amended update, a subsequent quarterly submission or the annual tax return, depending on the circumstances.

The guidance states that an honest quarterly reporting mistake will not trigger a penalty if the final figures are accurate when the annual return is filed. The penalty arrangements distinguish the initial year from subsequent reporting periods. HMRC will not apply penalty points for late quarterly updates during the 2026–27 tax year, but the exemption does not automatically extend to people joining in later years.

Under the points-based system described by HMRC, each missed quarterly deadline adds one point, and four points trigger a £200 penalty for quarterly updates. The threshold for annual tax returns is two points, while additional missed deadlines after reaching the applicable threshold can result in further £200 penalties. Separate penalties may apply when tax payments are late.

In an analysis published by Open Access Government, Harvey Dhillon, founder and CEO of Zmartly, argued that later groups should receive the same initial adjustment period as the first group of taxpayers. He highlighted the shorter preparation window facing people whose eligibility depends on their 2025–26 tax returns, which are due by January 31, 2027. Dhillon also highlighted the effect on childminders, who have historically been able to use simplified expense calculations under arrangements originating in a 1986 agreement between the then Inland Revenue and the National Childminding Association.

Under the guidance for those within Making Tax Digital, childminders must instead follow the applicable rules for actual costs, reasonable business-use allocations and digital records. Dhillon proposed giving each new group a penalty-free first year, developing digital versions of simplified childminder expense methods and notifying potentially affected taxpayers earlier. These proposals are recommendations from Dhillon, not announced changes to HMRC policy.

Some taxpayers, including people who are older, disabled or digitally excluded, may qualify for an exemption from digital reporting, according to HMRC guidance reported by Taxi Point. Vehicle purchases and capital allowances must generally be addressed through the annual tax return, while allowable running costs and finance interest may be recorded in quarterly expense totals.

The next standard quarterly update deadline is November 7, 2026, for taxpayers already covered by the system. The next expansion is scheduled for April 2027, when eligible sole traders and landlords whose 2025–26 qualifying income exceeds £30,000 will enter the reporting regime.