Making Tax Digital for Income Tax: What it means for solicitors

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From 6 April 2026, the way self-employed, sole-practitioner solicitors will need to report their income to HMRC under Making Tax Digital (MTD) for Income Tax, requiring you to keep digital records and submit quarterly updates using compatible software.

It is important to note that MTD does not apply to partners in partnerships (and members in LLPs) in respect of their partnership income.  However, you may need to comply with MTD if you have other sources of qualifying income (self-employment or property income outside of the partnership).

Who will be affected?

MTD is being phased in according to gross income (i.e., not profit) on Self-Assessment Tax Returns.  Solicitors must comply from April 2026 if their combined self-employment and property income exceeds £50,000.

In the coming tax years, the threshold will drop, capturing those with qualifying income over £30,000 in April 2027 and those with qualifying income over £20,000 in April 2028.

Income from/covered by the Rent a Room Scheme, the £1,000 trading/property allowance, employment, dividends, savings, or pensions does not count towards the threshold when assessing whether an individual is mandated into MTD.

What do solicitors need to do?

Under the new regime, affected solicitors must:

• Register for MTD if their total income from self-employment and property is more than £50,000
• Use MTD compatible software to maintain records of income and expenses (including the amount, category and date of income and expenses (with the categories following those on current Self-Assessment Tax Returns)
• Submit quarterly updates to HMRC (due 30 days after each Income Tax quarter ends)
• Complete a Final Declaration at year-end

Are tax payment dates changing?

No, the payment dates for tax will remain the same as under Self-Assessment and the amount of tax due will not change.

Are MTD penalties going to be charged?

Penalties for late MTD submissions will be on a points-based system (like the rules introduced for VAT in 2023). No financial penalty arises for the first late submission. Late payment penalties are also changing for taxpayers within MTD (again aligned with the new rules for VAT).

There are no changes to penalties for failure to keep adequate records. A penalty of up to £3,000 may be charged for each failure to keep or preserve adequate records in relation to a return. This includes failures such as not maintaining digital records or breaks in digital links within compatible software.

Inaccuracy penalties do not apply to MTD quarterly updates, but do apply to the annual tax return in MTD in the same way that they apply to Self-Assessment tax returns.  There are no specific failure to notify penalties for MTD – the normal Self-Assessment penalties still apply.

How will MTD impact solicitors?

The transition to MTD for solicitors could be particularly challenging, as delays between performing work, issuing a fee note, and receiving payment can create complexities.

Seek advice to ensure MTD compliance

Transitioning to MTD is mandatory for those whose qualifying income meets the threshold. Armstrong Watson supports solicitors with both the registration process and all MTD submissions, ensuring compliance is maintained seamlessly and without added stress.