Making Tax Digital for Income Tax: 2026 Guide for Sole Traders

Making Tax Digital for Income Tax is now part of the reporting system for the first group of qualifying sole traders and landlords.

From 6 April 2026, people within the rules must keep digital records, use compatible software and send quarterly updates to HMRC.

If you are self-employed, it is important to understand whether the rules apply to you, which income HMRC uses for the test and what you need to do throughout the tax year.

This guide explains the main Making Tax Digital requirements for sole traders in 2026.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax, often shortened to MTD for Income Tax, changes how qualifying sole traders and landlords maintain records and report business information to HMRC.

People within the system need to use compatible software to:

• Create, store and correct digital records
• Record self-employment and property income and expenses
• Send quarterly summaries to HMRC
• Add other income and relevant adjustments
• Submit their tax return through compatible software

MTD does not replace the need to submit a tax return or pay tax. The annual tax return and payment deadline remains 31 January following the end of the relevant tax year.

Who needed to start MTD from April 2026?

MTD for Income Tax became mandatory from 6 April 2026 for qualifying sole traders and landlords whose total qualifying income was more than £50,000 in the 2024/25 tax year.

HMRC checks the income reported on the relevant Self Assessment tax return to determine when a person enters the system.

The phased timetable is:

• From 6 April 2026: qualifying income over £50,000, assessed using 2024/25 figures
• From 6 April 2027: qualifying income over £30,000, assessed using 2025/26 figures
• From 6 April 2028: qualifying income over £20,000, assessed using 2026/27 figures

The wording is “more than” the relevant threshold. Income equal to the threshold is not above it, although a later lower threshold may still bring the person into MTD.

What is qualifying income?

Qualifying income is broadly the total gross income from self-employment and property before expenses are deducted.

If you have both self-employment and property income, the relevant amounts are generally combined.

For example, a sole trader with £35,000 of gross business income and £18,000 of gross property income would have combined qualifying income of £53,000 before considering any applicable exclusions or special rules.

Qualifying income is not the same as taxable profit. A business may make a much smaller profit after costs but still exceed the MTD threshold because the test looks broadly at gross income.

Which income is not normally included?

Not every source of personal income counts towards the MTD qualifying-income test.

Employment income taxed through PAYE, pension income, dividends and savings income are not generally part of qualifying self-employment and property income.

An individual partner’s share of partnership profit does not currently count towards qualifying income for MTD in the same way as personal sole-trade income. Partnerships are not yet within the main MTD for Income Tax timetable.

There are additional rules for trusts, jointly owned property, short accounting periods and certain specialised income sources. Check your circumstances rather than relying only on total income shown in your bank account.

How will you know if MTD applies?

HMRC reviews Self Assessment information and may write to confirm that a taxpayer needs to use MTD from a particular date.

However, it remains the taxpayer’s responsibility to check whether and when the rules apply, even if a letter has not arrived.

You should review:

• Your gross self-employment income
• Your gross property income
• The relevant tax year used for the threshold test
• Any exemptions that may apply
• Whether all income sources were reported correctly

What digital records must be kept?

Qualifying users must keep digital records of the income and expenses relating to each self-employment and property business.

Digital records normally include the transaction date, amount and category. The software must be able to use those records to produce the totals included in quarterly updates.

Paper receipts can still exist as supporting documents, but the required transaction information must be maintained digitally.

If information moves between different pieces of software, the transfer needs to preserve an appropriate digital link. Repeatedly copying figures manually between systems may not satisfy the relevant digital-link rules.

What is MTD-compatible software?

Compatible software is software capable of maintaining the required digital records and communicating with HMRC’s MTD system.

Some businesses use a complete cloud-accounting platform. Others may use spreadsheets combined with approved bridging software.

Before choosing a product, check that it supports MTD for Income Tax rather than only MTD for VAT.

You should also consider:

• Bank feeds and transaction categorisation
• Receipt capture
• Invoice creation
• Separate self-employment and property records
• Quarterly-update functionality
• Agent access
• Security and backups
• Ongoing subscription costs

What are quarterly updates?

Every three months, compatible software adds together the digital records for each relevant business and creates summary totals for income and expense categories.

These summaries are sent to HMRC as quarterly updates.

A quarterly update is not a full tax return. It does not require every year-end adjustment or relief to be finalised at that stage.

If you have more than one self-employment or property business, a separate update may be required for each income source.

What were the first 2026 quarterly dates?

For most users following standard tax-year quarters, the first period ran from 6 April to 5 July 2026, with an update deadline of 7 August 2026.

HMRC also permits an election to use calendar quarters, under which the first period runs from 1 April to 30 June. The submission deadline is still 7 August.

Later quarterly deadlines generally follow in November, February and May, but users should check the dates shown in their software and HMRC account.

Do quarterly updates calculate the final tax bill?

No. Quarterly updates provide summaries based on the digital records available at the time.

The final tax position can depend on allowances, reliefs, accounting adjustments, other income and personal circumstances.

A business owner should not treat a quarterly total as a final tax calculation without reviewing the complete year-end position.

What happens at the end of the tax year?

After the final quarterly update, the taxpayer needs to review the records, make relevant accounting and tax adjustments, include other income sources and submit the tax return through compatible software.

The tax return and payment deadline remains 31 January following the end of the tax year.

Keeping accurate records throughout the year should make this final process more manageable, but the year-end review remains important.

Are any sole traders exempt?

Some people are automatically exempt, while others may be able to apply for an exemption based on their circumstances.

Automatic exemptions include people whose qualifying income is £20,000 or less, subject to the detailed rules, and some specific roles or tax-return situations.

A person may be able to apply for exemption where it is not reasonable or practical to use digital tools because of age, disability, location, religious beliefs or another qualifying circumstance.

An exemption is not automatic simply because someone prefers paper records or finds new software inconvenient. Check the current HMRC criteria and application process.

What happens if your income falls?

Once someone is within MTD, falling below a threshold for one year does not always mean they leave immediately.

HMRC applies rules that consider qualifying income over successive years. Do not stop digital records or quarterly updates without confirming that you are no longer required to use the service.

Common MTD preparation mistakes

• Looking at profit instead of gross qualifying income
• Ignoring property income when calculating the threshold
• Assuming PAYE salary counts towards the test
• Choosing software that supports VAT but not MTD for Income Tax
• Waiting until the quarterly deadline to organise three months of records
• Mixing several businesses into one set of unclear records
• Failing to authorise the software correctly
• Assuming quarterly updates replace the annual tax return
• Ignoring possible exemptions or special rules

How can sole traders prepare?

1. Confirm your qualifying income and start date.
2. Check whether an exemption may apply.
3. Choose compatible software.
4. Open a separate business bank account if you do not already use one.
5. Set up clear income and expense categories.
6. Upload receipts and invoices regularly.
7. Reconcile the bank account every month.
8. Authorise the software and complete the HMRC sign-up steps.
9. Record quarterly deadlines in your calendar.
10. Arrange support before a backlog develops.

MTD support from Real Key Accountancy

Real Key Accountancy helps sole traders organise digital records and prepare for Making Tax Digital for Income Tax.

We can review your record-keeping process, discuss compatible software and provide ongoing bookkeeping support based on your needs.

Contact Real Key Accountancy to arrange a free 15-minute accounts review.

Frequently asked questions

Did MTD for Income Tax start in April 2026?

Yes. It became mandatory from 6 April 2026 for the first group of qualifying sole traders and landlords with income above the relevant threshold.

Is the 2026 threshold based on turnover or profit?

It is based broadly on gross qualifying income before expenses, not taxable business profit.

Does employment income count?

PAYE employment income does not normally count as qualifying self-employment or property income for this test.

Do quarterly updates replace Self Assessment?

No. Users still need to submit a tax return and pay the tax due by the normal annual deadline.

Can an accountant or agent submit MTD updates?

Yes. An authorised agent can help manage MTD obligations, but the taxpayer remains responsible for providing complete and accurate information.

This article is general guidance only and does not constitute personalised tax, accounting or financial advice. MTD rules can change, so check current HMRC guidance for your circumstances.