Making Tax Digital for Income Tax: What Sole Traders Must Do

Making Tax Digital (MTD) for Income Tax Self Assessment is the biggest change to personal tax reporting in a generation. Instead of one annual return, affected sole traders and landlords now send HMRC quarterly updates through compatible software, followed by a final declaration.

Who has to follow MTD for Income Tax — and when

• From 6 April 2026: sole traders and landlords with qualifying income over £50,000.
• From 6 April 2027: those with qualifying income over £30,000.
• The government has signalled a further extension to lower income levels in later years.

Qualifying income means your gross self-employment and property income before expenses — not your profit. Someone with £55,000 of rental income and £40,000 of expenses is in scope, even though their profit is only £15,000.

What actually changes

Three things replace the single annual return. First, you must keep digital records of income and expenses in MTD-compatible software. Second, you send a quarterly update to HMRC for each business or property income source. Third, after the tax year ends you submit a final declaration, which brings together all your income, claims and reliefs — this replaces the old Self Assessment return.

Quarterly updates are summaries, not tax bills. Nothing is payable when you send one, and they are easier to correct than a return: you simply fix any error in the next update.

Choosing software

You need software that HMRC lists as compatible with MTD for Income Tax. Options range from full bookkeeping packages to simple bridging tools. If you already use cloud accounting software, check with your provider — most major platforms support MTD. Spreadsheets alone are not enough unless they connect to HMRC through bridging software.

What about people who cannot go digital?

Taxpayers who are digitally excluded — for example because of age, disability or remoteness of location — can apply to HMRC for an exemption. An accountant can also manage MTD submissions on your behalf as your agent.

How to prepare now

• Work out your qualifying income for the current tax year to see when MTD applies to you.
• Open a separate business bank account if you have not already — it makes digital record keeping far cleaner.
• Trial your chosen software for one quarter before you are mandated, so the first real submission is not your first ever.
• Diarise the quarterly update windows so they never surprise you.