Making Tax Digital for Income Tax: what sole traders need to know

Making Tax Digital (MTD) is changing how self-employed people and landlords report their income to HMRC. Instead of one tax return a year based on records kept any way you like, you keep digital records and send updates to HMRC through compatible software.

Who it applies to and when

MTD for Income Tax is being introduced in stages, based on your qualifying income: your total gross income from self-employment and property, before expenses.

• From 6 April 2026: qualifying income over £50,000.
• From 6 April 2027: qualifying income over £30,000.
• From 6 April 2028: qualifying income over £20,000.

HMRC usually looks at the income on an earlier tax return to decide when you join. Partnerships and limited companies are not included yet. Some people can apply for an exemption, for example if they cannot use digital tools. Always check your own position on GOV.UK.

What you will need to do

• Keep digital records of your business income and expenses using software that works with MTD.
• Send quarterly updates of your income and expenses to HMRC through that software.
• Submit a final tax return after the end of the tax year, by 31 January, adding any other income and claiming reliefs.
• Keep paying tax on the usual dates. The quarterly updates are reports, not extra tax bills.

What has not changed

Your tax is still calculated on the whole year, and the payment deadlines stay the same. The main difference is that you keep your records up to date throughout the year instead of rushing at the end.

How to get ready

• Check your qualifying income for the last tax year.
• Choose HMRC-recognised software, such as a cloud accounting package with bank feeds.
• Open a separate bank account for your business, if you have not already.
• Record transactions every week rather than every quarter.
• Agree with your accountant who will submit what.

The upside

Keeping your books up to date every week gives you a real-time view of your profit, cash and tax bill, which makes it easier to plan and harder to be caught out by a large bill in January.

Rules and thresholds can change. This article is general information, not tax advice. Check GOV.UK or speak to a qualified accountant about your situation.