Making Tax Digital for Sole Traders 2026: What You Need to Do
Last reviewed: 25 August 2026
Making Tax Digital for Income Tax is now live.
From 6 April 2026, certain sole traders must keep digital accounting records, send quarterly updates to HMRC using compatible software and submit their annual tax return through that software.
For the 2026/27 tax year, the rules generally apply if your qualifying income was more than £50,000 in 2024/25. Qualifying income means your gross income from self-employment and property before expenses are deducted. Employment income, pensions, dividends and an individual’s share of partnership profits do not normally count towards the MTD qualifying-income test.
The threshold reduces again over the next two tax years:
- more than £30,000: MTD from 6 April 2027
- more than £20,000: MTD from 6 April 2028
The first quarterly deadline for businesses already within MTD was 7 August 2026. If you should have started MTD but have not yet signed up, you should deal with it now rather than waiting for the next deadline.
Need help getting your records ready for MTD? Real Key Accountancy can help you organise your bookkeeping, understand your reporting obligations and prepare for Making Tax Digital.
Quick Answer: Does Making Tax Digital Apply to Sole Traders in 2026?
Yes. Making Tax Digital for Income Tax became mandatory for some sole traders on 6 April 2026.
You generally need to use MTD during the 2026/27 tax year if you are registered for Self Assessment, receive self-employment or property income and your total qualifying income was more than £50,000 in 2024/25.
The £50,000 test is based on gross qualifying income before expenses, not taxable profit.
If MTD applies, you must use compatible software to maintain digital records, send quarterly summaries to HMRC and submit your annual tax return through MTD-compatible software.
From 6 April 2027, the threshold falls to more than £30,000. From 6 April 2028, it falls to more than £20,000.
Table of Contents
- What is Making Tax Digital for Income Tax?
- Which sole traders need to use MTD in 2026?
- What does qualifying income mean?
- MTD thresholds for 2026, 2027 and 2028
- Worked examples
- What do sole traders have to do under MTD?
- MTD quarterly deadlines
- What records must be kept digitally?
- Can you still use Excel or spreadsheets?
- What happens if you have more than one business?
- What if you missed the first MTD deadline?
- Are there MTD exemptions?
- What are the MTD penalties?
- Does MTD mean paying tax four times a year?
- Do you still complete Self Assessment?
- Can an accountant manage MTD for you?
- How to prepare for MTD
- Common MTD mistakes
- DIY versus accountant support
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax, often shortened to MTD for Income Tax, changes how sole traders and landlords maintain and report their accounting information to HMRC.
Instead of preparing your business figures only when your annual Self Assessment return is due, people within MTD must maintain their qualifying business records digitally throughout the year.
Compatible software is then used to:
- create, store and correct digital records;
- send quarterly updates to HMRC;
- add other relevant income and tax information; and
- submit the annual tax return.
Quarterly updates are not four separate tax returns. They are summaries generated from the digital records maintained during the year.
MTD also does not mean that your Income Tax suddenly becomes payable every three months. Your normal Income Tax payment deadline remains linked to your annual tax position.
Which Sole Traders Need Making Tax Digital in 2026?
For the 2026/27 tax year, you generally need MTD for Income Tax if all of these apply:
- you are an individual registered for Self Assessment;
- you receive income from self-employment, property or both;
- your qualifying income was more than £50,000 in 2024/25; and
- no exemption applies.
HMRC reviews information from previous Self Assessment returns to determine when taxpayers are likely to enter MTD.
However, HMRC makes clear that you remain responsible for checking whether the rules apply even if you have not received a letter.
MTD income thresholds
| Qualifying income shown for | Income threshold | MTD starts |
|---|---|---|
| 2024/25 | More than £50,000 | 6 April 2026 |
| 2025/26 | More than £30,000 | 6 April 2027 |
| 2026/27 | More than £20,000 | 6 April 2028 |
What Does Qualifying Income Mean for MTD?
This is one of the most important parts of the rules.
Qualifying income is broadly your gross income from self-employment and property before expenses are deducted.
It is turnover rather than profit.
HMRC combines qualifying income from different relevant sources when assessing the threshold.
For example, somebody could have:
- £28,000 of sole-trader turnover; and
- £25,000 of gross property income.
Their combined qualifying income would be £53,000.
They could therefore fall within the £50,000 MTD threshold even though neither income source exceeds £50,000 by itself.
Income that does not normally count
HMRC states that qualifying income does not include other income such as:
- PAYE employment;
- State Pension;
- private pensions;
- dividends; or
- your share of partnership profits as an individual partner.
That distinction matters for people who have both employment and a side business.
What Does Qualifying Income Mean for MTD?
This is one of the most important parts of the rules.
Qualifying income is broadly your gross income from self-employment and property before expenses are deducted.
It is turnover rather than profit.
HMRC combines qualifying income from different relevant sources when assessing the threshold.
For example, somebody could have:
- £28,000 of sole-trader turnover; and
- £25,000 of gross property income.
Their combined qualifying income would be £53,000.
They could therefore fall within the £50,000 MTD threshold even though neither income source exceeds £50,000 by itself.
Income that does not normally count
HMRC states that qualifying income does not include other income such as:
- PAYE employment;
- State Pension;
- private pensions;
- dividends; or
- your share of partnership profits as an individual partner.
That distinction matters for people who have both employment and a side business.
What Do Sole Traders Have to Do Under MTD?
MTD creates three main practical obligations.
1. Keep digital records
You or your agent must create and store digital records of relevant self-employment and property income and expenses.
HMRC says a digital record should generally record:
- the amount;
- the transaction date; and
- the appropriate income or expense category.
You must also retain the underlying records you would normally keep for Self Assessment, such as invoices and bank statements.
2. Submit quarterly updates
Your compatible software totals the digital records and sends an update to HMRC.
An important detail that is sometimes missed is that HMRC’s current rules make quarterly updates cumulative.
For example, the second standard update covers the period from 6 April to 5 October, rather than reporting only transactions from July to October.
3. Submit your annual tax return
After the tax year ends, you still need to finalise your tax position.
Your MTD software will need to include relevant adjustments, reliefs and other income before the tax return is submitted.
Other sources such as savings interest, dividends and partnership income may need to be added before the return is finalised.
Making Tax Digital Quarterly Deadlines
For a sole trader using the standard 6 April to 5 April reporting periods:
| Cumulative reporting period | Submission deadline |
|---|---|
| 6 April – 5 July | 7 August |
| 6 April – 5 October | 7 November |
| 6 April – 5 January | 7 February |
| 6 April – 5 April | 7 May |
For the 2026/27 tax year, that means:
- 7 August 2026;
- 7 November 2026;
- 7 February 2027;
- 7 May 2027.
As this guide was reviewed on 25 August 2026, the first deadline has already passed.
The next standard MTD quarterly deadline is 7 November 2026.
Suggested Visual: A horizontal MTD timeline showing 6 April 2026, the four quarterly deadlines, 31 January 2027 for the old 2025/26 Self Assessment return and 31 January 2028 for the first 2026/27 return submitted through MTD software.
What If You Missed the First MTD Deadline?
Do not assume that missing 7 August means you should wait until November.
If you should already be using MTD, you should:
- confirm that you are within the rules;
- sign up if necessary;
- connect compatible software;
- create the required digital records from the appropriate start of the tax year;
- bring your bookkeeping up to date; and
- submit the outstanding information.
HMRC says that if somebody joins during the tax year, they may need to catch up their digital records from the beginning of the relevant tax year.
There is some breathing room in the first year: HMRC will not apply penalty points for late quarterly updates for 2026/27.
That does not mean quarterly updates are optional. You still need to send them before you can submit the annual tax return.
HMRC Will Start Signing Some People Up From September 2026
This is a particularly important recent change.
HMRC updated its guidance on 24 August 2026 to state that, from September 2026, it will start signing up people who should be using MTD for 2026/27 but have not signed themselves up.
HMRC will use the information it already holds.
That information may not reflect recent changes in your circumstances, so signing yourself up — or asking your agent to do it — gives you an opportunity to check that income sources and details are correct.
Do not assume HMRC signing you up means your bookkeeping has also been completed. You still need compatible software and appropriate digital records.
Can Sole Traders Still Use Excel or Spreadsheets?
Yes — MTD does not necessarily mean abandoning spreadsheets.
HMRC recognises software that connects to existing digital records, including spreadsheets.
This is usually referred to as bridging software.
The bridging software connects the spreadsheet records to HMRC so that the required submissions can be made digitally.
Your main options are therefore broadly:
- full accounting/bookkeeping software;
- spreadsheets plus compatible bridging software; or
- an accountant or bookkeeper operating suitable software on your behalf.
HMRC does not provide its own MTD accounting software and does not recommend one particular commercial provider. Its software finder contains recognised products, including some options designed for relatively simple tax affairs.
What If You Have More Than One Sole-Trader Business?
Separate businesses create an additional layer of administration.
HMRC says that if you operate more than one source of self-employment income, each business needs separate digital records and separate quarterly updates.
For example, someone who works as both:
- an electrician; and
- a driving instructor
would maintain separate records for the two businesses.
This is different from simply having different customers within one trade.
If you also have rental income, that may create another income source that must be considered.
Are There Simpler Digital-Record Rules for Smaller Businesses?
Potentially.
HMRC allows simpler categorisation in certain circumstances where turnover for the particular self-employment or UK property income source is below £90,000, which is the current VAT registration threshold.
For a qualifying sole-trader business below that level, the taxpayer may be able to categorise a transaction simply as income or expense rather than using the full Self Assessment expense breakdown.
However, if turnover later reaches £90,000, the records may need to be fully categorised before the relevant submission can be made.
This is useful because MTD does not necessarily require every micro-business to maintain complex management accounts.
Are Any Sole Traders Exempt From MTD?
Yes.
Some exemptions are automatic, while others require an application.
For example, HMRC may accept a digital exclusion exemption where it is not reasonable for someone to use compatible software because of circumstances such as:
- age, a health condition or disability;
- religious beliefs incompatible with electronic record keeping; or
- being unable to obtain suitable internet access because of location.
Simply preferring paper records, being unfamiliar with accounting software, having few transactions or facing extra software costs is not, by itself, enough for a digital-exclusion exemption.
Other specific exemptions exist, including temporary exemptions linked to particular Self Assessment circumstances.
If an exemption applies, the taxpayer generally continues using ordinary Self Assessment instead of MTD.
Does MTD Mean Paying Income Tax Quarterly?
No.
This is a very common misconception.
The quarterly requirement relates to reporting information, not automatically making four Income Tax payments each year.
Your quarterly figures can help provide a more current indication of your tax position, but the main tax payment deadline remains linked to your annual tax return.
Do You Still Need to Submit Self Assessment?
Yes, but the method changes.
If you started MTD on 6 April 2026, you still need to submit your 2025/26 Self Assessment return using the previous process by 31 January 2027.
Your first tax return completed through MTD software will relate to the 2026/27 tax year, with a submission deadline of 31 January 2028.
This overlap is easy to miss.
During 2026/27 you may therefore be:
- maintaining 2026/27 records under MTD; while
- separately preparing your 2025/26 Self Assessment return under the previous system.
What Are the Penalties for Missing MTD Deadlines?
HMRC has introduced a points-based late-submission system for taxpayers within MTD.
For quarterly updates after the 2026/27 introductory year, missed deadlines can generate penalty points.
HMRC states that the relevant threshold is four points. Once the threshold is reached, a £200 penalty can apply, followed by another £200 for further missed submission deadlines while the taxpayer remains at the threshold.
However, there is a major first-year concession:
No penalty points will be issued for late quarterly updates during 2026/27.
Late annual tax returns and late payment can still lead to penalties and interest.
The safest approach is therefore not to treat 2026/27 as a year when quarterly reporting can simply be ignored.
How to Prepare for Making Tax Digital
A practical MTD preparation process is:
- Check your qualifying income. Use the correct historic tax return rather than your current bank balance or estimated profit.
- Check which income sources count. Include relevant self-employment and property income.
- Confirm your MTD start date.
- Check whether an exemption applies.
- Choose compatible software.
- Decide whether to keep full accounting records or use spreadsheets with bridging software.
- Separate your business transactions from personal spending where practical.
- Bring bookkeeping up to date from the start of the relevant reporting period.
- Set reminders for 7 August, 7 November, 7 February and 7 May.
- Decide who will submit the updates — you or your accountant.
- Review your records before the annual tax return is submitted.
Suggested Visual: MTD readiness flowchart: “Check qualifying income → Check start date → Choose software → Create digital records → Quarterly updates → Final tax return”.
Common Making Tax Digital Mistakes
Confusing turnover with profit
The MTD threshold is based on qualifying gross income before expenses, not simply taxable profit.
Looking only at one business
Different self-employment and property sources may need to be added together when checking qualifying income.
Including PAYE salary in the threshold
Employment income does not normally form part of MTD qualifying income.
Assuming quarterly updates are four tax returns
They are summaries generated from your digital business records.
Thinking the first-year penalty concession means MTD is optional
It does not. HMRC still requires the records and updates.
Waiting until January to organise bookkeeping
MTD is specifically designed around ongoing digital records. Leaving everything until the annual tax-return deadline makes compliance harder.
Buying software without checking its features
Make sure it supports all the income sources you need to report, your accounting period and the annual tax return — not merely quarterly submissions.
Can an Accountant Do Making Tax Digital for You?
Yes.
An authorised agent can use compatible software and manage MTD obligations on behalf of a client.
For some sole traders, doing it themselves will be perfectly practical. Others may prefer an accountant or bookkeeper where there are multiple businesses, property income, CIS deductions, VAT, complicated expenses or bookkeeping that needs correcting.
| Situation | DIY may work well | Accountant/bookkeeper may help |
|---|---|---|
| Few straightforward transactions | ✓ | Optional |
| Comfortable with software | ✓ | Optional |
| Spreadsheet already well maintained | ✓ | Useful for setup/review |
| Multiple businesses | Possible | ✓ |
| Sole trader plus property income | Possible | ✓ |
| CIS deductions | Possible | ✓ |
| VAT plus MTD Income Tax | Possible | ✓ |
| Historic bookkeeping problems | Harder | ✓ |
| Unsure what income counts | Harder | ✓ |
| Need someone to manage submissions | — | ✓ |
An accountant does not remove your underlying responsibility as the taxpayer, but they can manage much of the practical bookkeeping and filing process.
Unsure whether MTD applies to you? Real Key Accountancy can review your business income, help organise your digital records and explain what needs to happen before your next reporting deadline.
Book a Free Consultation
Conclusion
Making Tax Digital is no longer a future proposal for sole traders. It began on 6 April 2026 for individuals with more than £50,000 of qualifying self-employment and property income based on 2024/25 figures.
The most important points are:
- the threshold is based on gross qualifying income, not profit;
- MTD requires ongoing digital records;
- quarterly updates are required;
- spreadsheets can still be used with suitable bridging software;
- the first 2026/27 quarterly deadline was 7 August 2026;
- there are no penalty points for late quarterly updates during 2026/27, but the updates remain mandatory;
- HMRC will start signing up some affected people from September 2026;
- the threshold falls to £30,000 in April 2027 and £20,000 in April 2028.
If you should already be using MTD but have not started, dealing with the records now will generally be easier than allowing several reporting periods to accumulate.
The exact position depends on your circumstances, so check HMRC’s current guidance or speak to a suitably qualified professional if you are uncertain.
Frequently Asked Questions
Everything you need to know about our bookkeeping services and how we can support your business.
When did Making Tax Digital start for sole traders?
MTD for Income Tax became mandatory for the first group of qualifying sole traders on 6 April 2026.
What is the MTD threshold for 2026?
For 2026/27, the threshold is more than £50,000 of qualifying income, assessed using relevant 2024/25 figures.
Is MTD based on turnover or profit?
It is based broadly on qualifying gross income before expenses, rather than taxable business profit.
What happens if my turnover is exactly £50,000?
HMRC describes the 2026 threshold as more than £50,000. £50,000 exactly is therefore not above that threshold, although later lower thresholds could bring you into MTD.
Does my employment salary count towards the £50,000 MTD threshold?
Normally no. PAYE employment income is excluded from qualifying income for this test.
Does rental income count towards MTD?
Yes. Relevant gross property income and self-employment income can be combined when determining qualifying income.
Does partnership income count?
Your share of profit from a partnership as an individual partner does not count towards MTD qualifying income. Partnerships themselves are not currently mandated under the same timetable.
Do I need to submit four tax returns every year?
No. Quarterly updates are summaries of digital records, not four complete tax returns.
Do I have to pay tax quarterly under MTD?
No. Quarterly reporting does not automatically change Income Tax into a quarterly payment system.
Can I still use Excel for Making Tax Digital?
Yes, provided your spreadsheet records connect to HMRC through suitable compatible or bridging software.
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