Making Tax Digital for sole traders: who it affects and when

What Making Tax Digital for Income Tax is

Under MTD you keep your business records in software that works with HMRC's systems, rather than in a notebook or a spreadsheet you type up once a year. Every three months the software sends HMRC a summary of your income and expenses. After the tax year ends, you finalise everything and submit your tax return through the same software.

HMRC doesn't see individual receipts or invoices, just totals for each category. The dates you pay your tax stay the same, with the balance and any payments on account still due on 31 January and 31 July.

Who has to use it and when

MTD for Income Tax applies to individuals with income from self-employment, property or both. HMRC looks at the tax return for an earlier year to decide when you have to start.

Partnerships and limited companies aren't included in these dates. If your income is £20,000 or less, you're not required to join under the current plans. HMRC writes to people it expects to be affected, but it's up to you to check.

• Qualifying income over £50,000 on your 2024 to 2025 return: use MTD from 6 April 2026
• Qualifying income over £30,000 on your 2025 to 2026 return: use MTD from 6 April 2027
• Qualifying income over £20,000 on your 2026 to 2027 return: use MTD from 6 April 2028

What counts as qualifying income

Qualifying income is your total income from self-employment and property before expenses. In other words, your turnover, not your profit. It includes your share of income from property you own jointly with someone else.

It doesn't include a salary from a job, your share of profits from a partnership, dividends (including from your own company) or pensions. So someone with a £60,000 salary and £12,000 of freelance income has qualifying income of £12,000.

This catches a lot of people out. Say you're a sole trader who invoiced £35,000 in the 2025 to 2026 tax year and spent £10,000 on materials and costs. Your profit is £25,000, but your qualifying income is £35,000. That's over £30,000, so you'd need to use MTD from 6 April 2027. Likewise, £18,000 of self-employment turnover and £14,000 of rent adds up to £32,000 of qualifying income.

Quarterly updates: what you send and when

Each update is a running total from the start of the tax year, so the second one covers April to October, not just July to October. Your software adds up your records and sends the figures. If your turnover is below the VAT threshold of £90,000, you can send your expenses as a single total rather than split into categories.

Updates are due on the 7th of the month after each period ends. You can use calendar quarters (ending 30 June, 30 September, 31 December and 31 March) instead if that suits your bookkeeping. The deadlines are the same either way.

Late updates will eventually earn penalty points, and reaching four points means a £200 penalty. HMRC has said it won't give penalty points for late quarterly updates in the 2026 to 2027 tax year, but treat that as a grace period, not a habit.

• 6 April to 5 July: due 7 August
• 6 April to 5 October: due 7 November
• 6 April to 5 January: due 7 February
• 6 April to 5 April: due 7 May

The tax return at the end of the year

After the fourth update you make any year-end adjustments, add other income such as a salary or savings interest, claim reliefs and submit your tax return through your software by 31 January. You may see this called the final declaration.

Earlier versions of MTD also asked for a separate end of period statement for each business. The government dropped that requirement after its review of MTD for small businesses, so you don't need to file one. The quarterly updates and tax return are what's left.

Software: what you'll need

HMRC doesn't provide its own MTD software. You choose a product from its list of compatible software, which you can search on GOV.UK by the features you need. Some free products are available for people with simple tax affairs, though they may have limits.

If you'd rather keep using spreadsheets, bridging software can connect a spreadsheet to HMRC and send your updates. Either way, your records need to be digital from the start of the tax year, so set the software up before 6 April rather than after it.

Exemptions and leaving MTD

You can apply for an exemption if you're digitally excluded, meaning it isn't reasonable for you to use software because of your age, a disability or health condition, where you live (for example, no reliable internet) or religious beliefs. Some groups are exempt without applying, including people without a National Insurance number, trustees, and people whose affairs are handled under a power of attorney because they can't manage them themselves.

If your qualifying income falls back below the threshold, you can't drop out straight away. You can leave once it's been below the relevant threshold for three tax years in a row.

What to do now if you're under the threshold

If you're below £20,000 today, you still file a normal Self Assessment return. But if you're growing, MTD may arrive sooner than you expect, because it's based on turnover, not profit. A useful check is whether your income before expenses this tax year could go over £20,000. If it does, you'll be using MTD from April 2028.

You can also sign up voluntarily before you have to, which gives you a year to practise. Different penalty rules apply to volunteers, so read HMRC's guidance first. For the bigger picture on what you'll owe, see self-employed tax explained, or if you're earning alongside a job, our guide to side hustle tax and the side hustle tax calculator. If you haven't registered with HMRC yet, start with how to register as self-employed.

• Open a separate bank account for the business, if you haven't already
• Move your records into bookkeeping software or a well organised spreadsheet now
• Record income and costs weekly rather than in a January rush
• Check your turnover each quarter against the next threshold