New digital income tax rules from April 2026

Farm businesses that operate as sole traders will have to comply with Making Tax Digital (MTD) rules for income tax from April 2026.

The new rules require businesses to use MTD-compatible software to keep digital records of income and expenses which are then sent to HMRC as quarterly updates.

The requirement initially applies to sole traders with qualifying (gross) income of over £50,000. That threshold drops to £30,000 in 2027.

Craig Ogilvie from HMRC points out that the quarterly updates are not tax returns but “simple, unadjusted summaries of income and expenditure”.

“If you make any errors in a quarterly update, don’t worry, you can make corrections in the next update,” he said.

VAT returns

The change follows on from MTD being rolled out for VAT returns in various phases from 2019 to 2022.

HMRC has previously said that MTD for income tax will also eventually apply to businesses that operate as partnerships, although a timeline for that has not been confirmed yet.

However, there are no plans for MTD to be extended to corporation tax, which would affect businesses that operate as limited companies.