Making Tax Digital is set to change how sole traders report their income to HMRC. From 6 April 2026, those earning over £50,000 will need to keep digital records and submit quarterly updates using approved software. The threshold will then fall to £30,000 in 2027 and £20,000 in 2028. Despite this, many business owners are still unsure what the changes involve. Recent surveys show that 42% of self-employed individuals do not fully understand the rules, while 37% are unclear about the income thresholds. This highlights a clear gap in awareness as the deadline approaches. In simple terms, Making Tax Digital for sole traders means moving away from a single annual return towards regular digital reporting. This guide explains what you need to know, how the rules work, and how to prepare.
Making Tax Digital for Income Tax means moving from paper/self-assessment to digital, quarterly reporting. Official HMRC guidance explains that sole traders and landlords in scope must use compatible software to:
In other words, instead of filing one annual return, you’ll split the tax admin across the year. HMRC notes this is the “biggest change” to self-assessment in decades. For taxpayers, it means your accounting needs to be computerised: no more paper ledgers. Each quarter, you tally your income and allowable expenses (or property rent and costs) in your software and submit the totals. At year-end, you adjust for any reliefs (capital allowances, etc.) and make the final submission. This gives you and HMRC a running picture of your tax liability.
From 6 April 2026, sole traders and landlords with total annual income above £50,000 from self-employment or property must sign up for MTD. Here income means gross turnover (total sales/rent before expenses). Example: if in 2024/25 your combined trade plus rental receipts exceed £50k, you join MTD on 6 Apr 2026. The threshold then steps down:
These figures match HMRC’s phased timeline. (Landlord and partner income is combined with self-employment.) HMRC will inform those whose prior-year returns exceed thresholds, but ultimately it’s your responsibility to join on time. If you don’t comply, penalties apply (see below). Certain groups are exempt (e.g. some trusts, estates, or those without a NI number), and individuals with valid digital exclusion reasons (age, disability, etc.) can apply to be exempt.
Instead of one annual return, MTD-IT requires four updates plus a final declaration each year. Specifically, the 2026–27 tax year quarters and deadlines are:
Each report includes total sales/rent and total costs for that quarter. (If deadlines fall on weekends or bank holidays, HMRC usually rolls them to the next working day – e.g. the first deadline is 7 Aug.) After Q4, your software will have annual totals, and you make a Final Declaration by 31 Jan (e.g. 31 Jan 2028 for 2026/27). The final declaration includes any other income (dividends, savings) and adjustments.
Meeting MTD deadlines is important: under the new system, late filings trigger penalty points. For example, 2 late filings = £200 fine. Further late submissions earn more points and fines. (Late tax payments incur interest and additional penalties too.) In short: file each quarter on time to avoid penalties, and keep on top of records.
Under MTD, HMRC requires you to use compatible software – they do not provide it for free. Broadly, you have three categories:
Full-featured packages (Xero, QuickBooks, FreeAgent, Sage, KashFlow, Zoho Books, etc.) that let you record income and expenses, import bank transactions, and file MTD reports directly.
Pros: Automated record-keeping, bank feeds, clear audit trail.
Cons: Subscription cost, learning curve.
Tools (often free or low-cost) that connect your existing spreadsheets or bookkeeping to HMRC. You still enter your data in Excel or offline ledgers, and the bridging app “picks up” the totals and submits them to HMRC.
Pros: Low cost, you keep your current workflow.
Cons: More manual work, risk of errors if spreadsheets aren’t maintained carefully.
Apps for smartphones/tablets that let you snap receipts, track mileage or expenses on the go. These usually integrate with a cloud accounting system.
Pros: Convenient for capturing receipts and small purchases.
Cons: Needs syncing to a back-end (so usually not standalone for filing).
Here is a brief comparison:
HMRC maintains a list of MTD-compliant software on GOV.UK. Many providers offer free trials. The main thing is not to rely on paper or simple spreadsheets only – all MTD submissions must come from an approved digital tool. As one expert put it: if you’re “still juggling spreadsheets, paper receipts and invoices, this is the moment to change that.”
To prepare for MTD, take these steps well before April 2026:
At Apex Accountants, we specialise in helping sole traders and landlords prepare for MTD. Our services include:
Let us take the stress out of MTD compliance. Contact Apex Accountants to get set up correctly and stay on track with the new digital reporting requirements.
Sole traders and landlords in Self Assessment whose combined gross self-employment/property income exceeds the threshold (currently £50k for 2024/25) must join MTD from the next April. If your income is below that, you can carry on as usual until the threshold lowers (to £30k in 2027).
It means turnover (total receipts before deducting costs). For example, 42% in the survey didn’t realise that “qualifying income” is basically turnover.
You add up all self-employment and property income together. (Other income like PAYE, savings or dividends doesn’t count toward the MTD threshold but is still reported on your return.)
You need HMRC-recognised software (cloud accounting or bridging). Examples: Xero, QuickBooks, FreeAgent, Sage (full accounting), or bridging tools if you prefer spreadsheets. You cannot file MTD returns with manual Excel alone; you must use the software’s submit function.
You still must, unless you get an exemption. HMRC has no official free MTD-IT software. Bridging tools can be very low-cost. Without software, you cannot meet the rules.
The deadlines are fixed to 7 Aug, 7 Nov, 7 Feb, 7 May. These correspond to the quarter just ended. After Q4, the final declaration (annual return) is due by 31 Jan. For example, Q1 (6 Apr–5 Jul 2026) is due 7 Aug 2026.
Late submissions incur penalty points. For instance, two late filings incur a £200 fixed penalty. Repeated or late tax payments add further fines and interest. Early preparation avoids these.
Yes. An accountant or agent can register you and submit updates on your behalf, but they must be authorised for MTD.
If your income is below £50k (in 2024/25) you do not need to join MTD in 2026. You continue with Self Assessment and can enter MTD voluntarily. But watch the thresholds: if you go over £30k next year, MTD kicks in from 2027.
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