On 6 April 2026, the government\u2019s Making Tax Digital for Income Tax will come into effect. This means that many sole traders, including taxi drivers, will be required to change the way they report their income and expenses. This guide will give you an overview of the scheme and how it will affect taxi drivers.<\/p>
Making Tax Digital for Income Tax is part of the government\u2019s move to creating a digital tax system. It follows the earlier implementation of Making Tax Digital for VAT, which began in 2019. <\/p>
The new system is how sole traders and landlords will report their income and expenses to HMRC.\u202fThe idea is to have real-time digital record keeping.<\/p>
For the first year, starting 6 April 2026, sole traders and landlords must use it if their annual qualifying income from self-employment and property is over \u00a350,000, based on their 2024\/25 tax return.\u202fThis can be a combination of both, but doesn\u2019t include other income like savings interest or PAYE.<\/p>
Rather than filing a self-assessment tax return at the end of the tax year, Making Tax Digital (MTD) requires 4 quarterly updates. The deadlines for each quarter are 7 August, 7 November, 7 February and 7 May. <\/p>
You then have to file your tax return by 31 January following the end of the tax year.<\/p>
Each quarterly filing will need to be done using MTD compatible software<\/a>, which can either be done through a tax agent or on your own. There are many free options available, so if you only have basic taxes then you should be able to use a free option. People with more complex taxes will likely need to pay for software if they don\u2019t already. Some software comes built-in to your actual business bank account. Tide<\/a> is one such case that helps you file the 5 submissions each year.<\/p> Compatible software will create, store and correct digital records of your self-employment and property income and expenses. Then you need to use that data to send quarterly updates to HMRC.<\/p> The changes might seem daunting, but once you have the software set up and integrated correctly then it\u2019s just a matter of making sure you enter the information and check your records are correct.<\/p> You should’ve been contacted by HMRC if you\u2019re required to start using Making Tax Digital. If you\u2019re unsure, you can check on the government website<\/a>.<\/p> For taxi drivers, if you work using a rideshare app, then the records will already be digital. You just need to find software that connects to the app so the records can be updated automatically for you. <\/p> If you drive a taxi that lets you earn fares in cash, you\u2019ll need to manually enter that information yourself into the software.<\/p> Card payments can usually be synced to the accounting software, but it might depend on what you use to receive them.<\/p> In terms of expenses, using a fuel card that creates a single digital invoice could save you from scanning and uploading individual paper receipts. You\u2019ll also need to log vehicle expenses manually, along with a copy of the receipt.<\/p> It might sound like more effort than you\u2019re used to doing, but if you get into the habit of logging income and expenses as it happens, it should mean your tax return will be an easier process at the end of the year.<\/p> An added benefit of sending quarterly updates is you\u2019ll be given a real-time estimate of how much tax you owe, which will give you time to prepare that payment when you submit your return.<\/p> The first thing to know is that because this is a new system, there are no penalties for missing a quarterly update deadline for the 2026\/27 tax year. But you\u2019ll still need to keep digital records and send quarterly updates to be able to complete your tax return once the tax year ends. You will still receive a late payment penalty<\/a> if you don\u2019t pay your tax on time.<\/p> After the first year, there will be a points-based penalty system in place if you miss a quarterly update or tax return deadline. So you\u2019d get 1 point for each late submission, up to a maximum of 4. If you get 4 points, then you\u2019ll get a \u00a3200 fine. Each subsequent point would accrue another \u00a3200.<\/p> Late payment penalties are percentage based and calculated depending how late the payment is. It\u2019s important to know that these will still apply in the 2026\/27 tax year, even though there are no penalties for missing the quarterly update deadline.<\/p>How do these changes affect taxi drivers?<\/h3>
What are the penalties?<\/h3>
Who is exempt?<\/h3>