New tax year 2026/27: what changes for sole traders?

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The biggest change this tax year: MTD for Income Tax is mandatory from 6 April 2026 for sole traders and landlords with gross income over £50,000. From this date:

• You must keep digital records using HMRC-recognised software
• You must submit quarterly updates to HMRC — four times a year
• The annual Self Assessment return is replaced by a Final Declaration (same 31 January deadline)

For sole traders earning between £20,000 and £50,000, MTD is on the horizon — the threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Now is a good time to get familiar with digital record keeping.

Income tax rates and bands 2026/27

Income tax rates are unchanged for 2026/27. The personal allowance remains frozen at £12,570:

The personal allowance is frozen until at least 2028 — meaning fiscal drag will pull more sole traders into higher tax bands as incomes grow.

National Insurance for the self-employed

Class 4 National Insurance rates are unchanged for 2026/27:

• Class 4 NI: 6% on profits between £12,570 and £50,270; 2% above £50,270
• Class 2 NI: £3.45/week if profits exceed £6,725 — collected through Self Assessment (or the Final Declaration under MTD)
• Small Profits Threshold: £6,725 — below this you're exempt from Class 2 NI

Capital Gains Tax

The annual CGT exemption has been reduced significantly in recent years and now sits at £3,000. Rates for 2026/27:

• Residential property: 18% (basic rate) and 24% (higher rate)
• Other assets: 10% (basic rate) and 20% (higher rate)

If you're selling business assets or property in 2026/27, factor in the lower exemption when planning the timing.

VAT threshold

The VAT registration threshold remains at £90,000 for 2026/27. If your turnover crosses this level, you must register for VAT. Note: the VAT threshold is based on turnover, not profit, and is separate from the MTD for Income Tax thresholds.

New penalty system for MTD filers

From April 2026, the penalty system for those in MTD changes to a points-based model:

• 1 point for each missed quarterly submission deadline
• £200 fine when you reach 4 points
• £200 for each subsequent miss after the threshold is reached
• Points reset to zero after 24 months of fully compliant submissions

Late payment penalties also apply: 2% of outstanding tax after 15 days, rising to 4% after 30 days, then 1% per day from day 31.

What to do on 6 April

If you're in scope for MTD from this tax year:

1. Confirm you're signed up for MTD for Income Tax with HMRC
2. Ensure your software is connected to HMRC and ready to receive transactions
3. Start recording digitally from day one — 6 April 2026 is the first day of your MTD records
4. Note your first deadline — Quarter 1 (6 April–5 July) is due by 5 August 2026

If you're below the threshold and continuing with Self Assessment, no changes are required for 2026/27 — but start getting familiar with digital tools ahead of future mandatory dates.

Frequently asked questions