Making Tax Digital for Sole Traders: Key Dates, Rules & How to Get Ready

Making Tax Digital for sole traders is no longer something to worry about later. It’s here.

From April 2026, sole traders earning over £50,000 are now required to ditch the annual tax return and switch to quarterly digital reporting instead. And the rest of us — everyone earning over £30,000, then £20,000 — are following over the next two years.

This post explains what’s actually changed, whether it affects you right now, what you’re required to do, and — most importantly — how to set yourself up so it’s not a headache.

No jargon, no scare tactics. Just what you actually need to know.

Quick note: I’m not your accountant, and this isn’t tax advice. This is a plain-English guide to help you understand what’s going on. If you have specific questions about your own situation, a qualified accountant is the right person to ask.

What Is Making Tax Digital?

Making Tax Digital (MTD) is HMRC’s plan to move the UK tax system online. The idea is to replace the once-a-year scramble of the Self Assessment tax return with regular, smaller digital updates throughout the year — so your records are always current and your tax position is clearer.

It started with VAT (VAT-registered businesses have been doing this since 2022) and has now expanded to Income Tax for sole traders and landlords.

The full name is Making Tax Digital for Income Tax Self Assessment — you’ll see it written as MTD ITSA or just MTD for Income Tax.

Does MTD Affect You Right Now?

It depends on your income level. Here’s the rollout:

What counts as qualifying income? It’s your gross income — before expenses — from self-employment and/or rental income combined. Not your profit. So if you earn £40,000 from freelance work and £15,000 from renting a property, your qualifying income is £55,000 and you’re in scope from April 2026.

If you earn under £20,000, HMRC hasn’t confirmed when or whether MTD will apply to you. But getting set up with digital records now is still a good idea — it makes tax time easier regardless.

What’s Actually Changed?

If you’re affected, here’s the shift in plain terms:

Before MTD: One annual Self Assessment tax return, filed by 31 January each year. Most people sorted it in a rush in January.

Under MTD: Four quarterly updates throughout the year, plus a Final Declaration at the end. All done through MTD-compatible software — no paper, no spreadsheets, no manual uploads.

The Four Quarterly Updates

Every quarter, you submit a summary of your business income and expenses to HMRC through your software. It’s not a full tax return — it’s more like a snapshot. The fixed deadlines are:

What Do You Need to Do?

Step 1: Work out if you’re affected now

Check your gross self-employment and rental income for the 2024/25 tax year (the last completed tax year). If the combined total is over £50,000, you need to be doing this from April 2026.

Step 2: Sign up for MTD ITSA with HMRC

You need to register for MTD through HMRC’s online service. You can’t just start submitting through software — you need to sign up first, then authorise your software to connect to HMRC.

Register for MTD ITSA on GOV.UK →

Step 3: Get MTD-compatible software

This is the most important practical step. Under MTD ITSA, you must use HMRC-approved software — spreadsheets and manual uploads are no longer acceptable. Your software needs to be on HMRC’s official compatible software list and able to connect directly to HMRC’s systems.

The good news: the main accounting tools sole traders already use are all MTD-ready. Xero, QuickBooks, and FreeAgent are all compatible.

Club deal: Members of The Self Employed Club get 90% off Xero for 6 months — one of the most popular MTD-compatible tools for sole traders. That’s the Ignite plan for £1.60/month while you get set up. Grab the deal here →

Not sure which software to choose? Here’s our honest review of Xero for sole traders →

Step 4: Start keeping digital records

From the start of your first MTD tax year, every business transaction needs to be recorded digitally in your software. That means logging income and expenses as you go — not reconstructing them at the end of the quarter.

The good news here: if you’re already using accounting software, you’re basically already doing this. It’s the sole traders who’ve been using a spreadsheet or a shoebox who’ll feel the biggest shift.

Step 5: Submit your quarterly updates

Once your software is set up and linked to HMRC, your quarterly updates are submitted directly from the software. Most tools make this straightforward — it’s a case of reviewing your figures and hitting submit, not building a tax return from scratch.

What About Penalties?

HMRC is using a points-based system for MTD ITSA:

• Miss a quarterly deadline → you get one penalty point
• Hit 4 points → automatic £200 fine
• Further late submissions while at the threshold → another £200 each time

Points reset after a period of consistent on-time filing.

Soft landing for 2026/27: HMRC has confirmed there are no penalty points for late quarterly updates in the first year (2026/27) for those newly mandated from April 2026. This gives people time to get set up without being penalised for early teething issues. But — and this matters — the soft landing doesn’t cover the Final Declaration or late payments. Those penalties still apply from day one.

From 2027/28, the full points-based system kicks in. So use 2026/27 to get your systems right.

Common Questions About MTD

“Do I have to pay tax four times a year?” No. Reporting quarterly doesn’t mean paying quarterly. Tax payment deadlines are unchanged — 31 January and 31 July as before.

“Can I still use a spreadsheet?” Not for MTD ITSA submissions. You need dedicated HMRC-approved software that connects directly to HMRC’s systems. Spreadsheets with bridging software (which was allowed for VAT) are not an accepted route for MTD Income Tax.

“I earn under £50,000 — do I need to do anything now?” Not yet. But it’s coming — £30,000 threshold from April 2027, £20,000 from April 2028. Getting into the habit of digital record-keeping now means the transition will be much smoother when your time comes.

“What if I have both self-employment and rental income?” Both count towards your qualifying income threshold. If the combined gross total exceeds £50,000 (or £30,000 from April 2027), you’re in scope.

“I missed my first quarterly deadline — what now?” File it as soon as you can. HMRC has confirmed no penalty points for missed quarterly updates in 2026/27, so you won’t be fined for a late first submission this year. But get caught up quickly and build the habit.

The Honest Upside

MTD feels like extra admin. But once you’re in the routine of keeping records digitally and doing a quick quarterly review, most sole traders find January a lot less stressful. You’re not reconstructing 12 months of receipts in one sitting — you’ve already done it in four smaller chunks.

The key is getting the right software set up properly from the start. Which brings us back to the same advice: don’t put it off. A good accounting tool does most of the heavy lifting for you.

The easiest way to get MTD-ready: Join The Self Employed Club free and access exclusive discounts on Xero and other MTD-compatible tools. See the current deals →

MTD Key Dates at a Glance

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