First MTD for Income Tax submission due 7 August with 54% of London sole traders and landlords still unprepared, Lloyds research finds
More than half of small businesses in London have not yet completed the steps needed to comply with Making Tax Digital for Income Tax, with fewer than two weeks remaining until the first submission deadline on 7 August 2026.
Research from Lloyds found that 54 percent of small businesses in London still have work to do before they are ready to meet the new HMRC requirements — a figure that closely mirrors the 55 percent recorded across the UK as a whole.
What Making Tax Digital for Income Tax Requires
Making Tax Digital for Income Tax — commonly referred to as MTD for Income Tax — represents a fundamental change to how sole traders and landlords report their income to HMRC. Under the new system, eligible taxpayers must:
- Maintain digital records of all income and expenses throughout the tax year
- Submit quarterly updates to HMRC using HMRC-recognised software
- Replace the previous system of a single annual Self Assessment tax return with ongoing digital reporting
The first quarterly submission deadline falls on 7 August 2026, covering income and expenses from the period April to June 2026.
The rules currently apply to sole traders and landlords with annual revenue of £50,000 or above. The threshold is scheduled to reduce in the coming years — dropping to £30,000 and subsequently to £20,000 — meaning a growing number of smaller businesses will be brought into the system over time.
Why So Many London Businesses Are Behind
The scale of unpreparedness among London’s small business community reflects several overlapping challenges that MTD for Income Tax presents.
For many sole traders, this is one of the most significant administrative changes to their tax obligations in years. Moving from annual Self Assessment — a process most will have managed independently or with annual accountant support — to quarterly digital reporting requires new software, new habits, and a more continuous approach to record-keeping throughout the year.
London’s self-employed population is particularly large and diverse, spanning creative industries, technology contractors, property landlords, food and hospitality businesses, and professional services. Many operate with minimal administrative infrastructure, managing finances alongside the practical demands of running their business day to day.
The research also highlights a time pressure issue. With multiple demands on their time, many sole traders have deferred action on MTD preparation — a pattern that is now creating urgency as the first deadline approaches.
What London Businesses Are Finding Useful
Among London small businesses that have already begun preparing for MTD for Income Tax, the research identified some measurable benefits from the transition to digital record-keeping:
- 45 percent said moving to digital tax management had helped them become more organised
- 33 percent said it had reduced last-minute tax stress compared to the previous annual return process
- 95 percent said it would be useful to manage tax records, deadlines, and administration through their existing banking app or online banking platform
The near-universal appetite for banking-integrated tax tools suggests that the friction of switching to separate software is itself a barrier for many businesses — and that solutions embedded in existing financial platforms are more likely to achieve broad adoption.
What Needs to Be Done Before 7 August
Sole traders and landlords caught by the current £50,000 threshold who have not yet acted need to complete the following steps before the 7 August deadline:
1. Confirm eligibility
Check whether your annual trading or property income meets or exceeds £50,000. HMRC’s online tools and guidance at gov.uk/making-tax-digital-for-income-tax can help confirm whether you are required to comply from the current tax year.
2. Choose HMRC-recognised software
MTD for Income Tax requires the use of software that is formally recognised by HMRC for digital record-keeping and quarterly submissions. A full list of compatible software is published on the HMRC website. Options range from dedicated accounting platforms to tools integrated within business banking accounts.
3. Set up digital records from April 2026
The first quarterly submission covers April to June 2026. Businesses need digital records covering this period to complete their first submission accurately.
4. Submit the first quarterly update by 7 August
The submission covers income and expenses from 6 April to 5 July 2026. HMRC has published detailed guidance on what the quarterly update should include and how to submit it through compatible software.
5. Plan for subsequent deadlines
MTD for Income Tax operates on four quarterly submission cycles per tax year. Future deadlines following the 7 August submission fall in November 2026, February 2027, and May 2027, with an end-of-year finalisation submission required in addition.
The Broader Context: HMRC’s Digital Transformation
Making Tax Digital is part of HMRC’s long-running programme to digitise the UK tax system. The programme began with MTD for VAT, which has been mandatory for VAT-registered businesses above the threshold since 2019 and was extended to all VAT-registered businesses in 2022.
MTD for Income Tax extends the same digital-first approach to income tax for self-employed individuals and landlords — a group that collectively represents millions of taxpayers and a significant share of HMRC’s Self Assessment caseload.
HMRC’s stated rationale for the change is that digital record-keeping reduces errors, makes tax administration more efficient, and gives businesses a more accurate, real-time picture of their tax position throughout the year rather than requiring a single annual reconciliation that may reveal unexpected liabilities.
What Happens If Businesses Miss the Deadline
HMRC operates a points-based penalty system for MTD for Income Tax. Rather than immediately imposing financial penalties for a first missed submission, HMRC accumulates penalty points for late submissions. Once a threshold number of points is reached, a financial penalty of £200 applies, with further penalties for continued non-compliance.
This approach is designed to be proportionate for businesses that occasionally miss a deadline while maintaining compliance overall, while still creating meaningful consequences for persistent non-compliance.
Businesses that are uncertain about their obligations or are struggling to meet the 7 August deadline should contact HMRC directly or seek advice from an accountant or tax adviser familiar with MTD requirements.
