Making Tax Digital is changing how sole traders report their income to HMRC. Instead of relying solely on an annual Self Assessment tax return, affected self-employed individuals must maintain digital records and submit regular updates using compatible software.

The changes matter if you run a small business, work as a freelancer, provide professional services or earn income from a combination of self-employment and property.

You may need to change how you record transactions, organise receipts, use accounting software and communicate with your accountant. The requirements depend on your qualifying income, rather than simply whether you are registered as a sole trader.

This Accfirm guide explains Making Tax Digital for sole traders in 2026/27, including the income thresholds, start dates, digital bookkeeping requirements, quarterly reporting deadlines, exemptions, penalties and practical steps to prepare your business.

1. What is Making Tax Digital for sole traders?

Making Tax Digital (MTD) for Income Tax is an HMRC reporting system that requires affected sole traders and landlords to keep digital records, submit quarterly income and expense updates, and complete their annual tax return using compatible software.

Making Tax Digital for Income Tax began on 6 April 2026 for individuals whose qualifying income exceeded £50,000 in the 2024/25 tax year. The requirements are being extended to additional sole traders and landlords in April 2027 and April 2028.

How does Making Tax Digital change Self Assessment?

Under traditional Self Assessment, sole traders generally report their business income and expenses through an annual tax return.

Under MTD for Income Tax, affected sole traders must maintain digital records throughout the year and submit regular updates before completing their annual return.

MTD quarterly updates are summaries of business income and expenses. They are not four separate tax returns, and they do not introduce quarterly Income Tax payments.

Accfirm tip: Making Tax Digital is primarily a change to your reporting and record-keeping obligations. It does not automatically increase the amount of Income Tax or National Insurance you owe.

2. When does Making Tax Digital become mandatory for sole traders?

Making Tax Digital for Income Tax became mandatory from 6 April 2026 for qualifying sole traders and landlords with more than £50,000 in qualifying income in 2024/25. The income threshold falls to more than £30,000 from April 2027 and more than £20,000 from April 2028.

The applicable start date depends on the qualifying income reported for the relevant earlier tax year and whether an exemption applies.

Making Tax Digital thresholds and start dates

The thresholds are strict. For example, qualifying income of exactly £30,000 does not exceed the £30,000 threshold, whereas qualifying income of £30,001 does.

Do you need to use Making Tax Digital in 2026/27?

You generally need to use MTD for Income Tax in 2026/27 if you are a sole trader or landlord registered for Self Assessment, your qualifying income exceeded £50,000 in 2024/25 and no exemption applies.

If your qualifying income did not exceed £50,000 in 2024/25, you would not normally have been required to join the first phase solely because your income increased during 2026/27. However, you may become subject to MTD in a subsequent phase.

Example: A sole trader earning £45,000

A self-employed graphic designer reported £45,000 in gross business income in 2024/25.

The designer did not exceed the £50,000 threshold for the April 2026 rollout.

However, if their qualifying income was £45,000 in 2025/26, they would normally need to start using MTD for Income Tax from 6 April 2027, because their income exceeded the £30,000 threshold for the second phase.

Example: A sole trader earning £65,000

A self-employed IT consultant reported £65,000 in qualifying income in 2024/25.

The consultant was generally required to use MTD for Income Tax from 6 April 2026, unless an exemption applied.

The consultant must keep the required digital records, submit quarterly updates and complete the 2026/27 tax return through compatible software.

What if your income falls after you join MTD?

A temporary fall in income does not automatically remove your Making Tax Digital obligations.

HMRC allows individuals whose qualifying income falls below the relevant threshold for three consecutive tax years to choose to leave the MTD service, subject to the applicable conditions.

Sole traders should therefore not assume that a single year of lower turnover means they can immediately return to traditional Self Assessment.

3. What income counts towards the Making Tax Digital threshold?

Qualifying income is your total gross income from self-employment and property before deducting allowable expenses. HMRC combines income from all relevant sole trader businesses and property sources when assessing whether you exceed the Making Tax Digital threshold.

Employment income, dividends and pensions are generally excluded from the qualifying income calculation.

Which income sources count towards MTD?

Your qualifying income may be spread across several businesses and properties. HMRC assesses the relevant combined income rather than looking at each business in isolation.

Example 1: Turnover of £55,000 and profit of £25,000

A sole trader reports the following results for 2024/25:

For Making Tax Digital, the relevant starting figure is £55,000 of gross business income, not the £25,000 profit.

The sole trader exceeded the £50,000 qualifying income threshold and would generally have been required to join MTD from 6 April 2026.

Example 2: Freelance income and rental income

A freelance web developer reported £35,000 in gross self-employment income and £18,000 in rental income in 2024/25.

The developer would generally have been required to use MTD from 6 April 2026, assuming no exemption applies.

The obligation can cover both the sole trader business and the relevant property income.

Example 3: A sole trader with PAYE employment income

Suppose you received £40,000 from employment and £25,000 in gross self-employment income in 2024/25.

Your combined income was £65,000, but only the £25,000 self-employment income counts towards the standard MTD qualifying income threshold.

The employment income does not, by itself, bring you within the April 2026 MTD requirements.

You should still check the applicable threshold for later tax years.

Example 4: Two separate sole trader businesses

You run a photography business with £28,000 in annual gross income and a separate consulting business generating £27,000.

Your combined qualifying income is £55,000.

Operating the businesses separately does not mean each business receives its own £50,000 MTD threshold.

If these were your relevant income figures for 2024/25, you would generally have needed to use Making Tax Digital from April 2026.

Does VAT count towards qualifying income?

VAT registration does not, by itself, determine whether you must use MTD for Income Tax.

The treatment of VAT within the qualifying income calculation can depend on your accounting method. HMRC states that VAT-registered businesses using the cash basis may choose whether to include or exclude VAT when declaring their business income. If included, VAT forms part of the income figure assessed for MTD.

Check how your income was reported in the relevant Self Assessment return before deciding whether your qualifying income exceeds the threshold.

4. What are the main Making Tax Digital requirements for sole traders?

Sole traders within the scope of MTD for Income Tax must maintain digital records, use compatible software, submit quarterly updates and complete an annual tax return through the MTD system.

The requirements apply to each relevant self-employment and property business, rather than simply requiring a single combined quarterly update covering every income source.

Requirement 1: Maintain digital accounting records

You must record your relevant business income and expenses digitally using compatible software.

Your records should include the transaction information required by HMRC, such as the amount, date and applicable income or expense category.

For a sole trader, this typically involves recording sales, business purchases, professional fees, travel expenses and other relevant trading transactions.

Digital records can be created using accounting software or an appropriately configured spreadsheet linked to compatible software.

HMRC requires affected taxpayers to maintain digital records from the applicable start date and keep them accurate throughout the year.

Requirement 2: Submit four quarterly updates

You must submit four quarterly summaries of income and expenses for each relevant business during the tax year.

Your software uses your digital records to calculate the appropriate totals and transmit the updates to HMRC.

The quarterly summaries are not final tax calculations. You do not need to complete all year-end accounting adjustments before submitting each quarterly update.

Requirement 3: Complete an annual tax return

After the tax year ends, you must review your financial records, make any necessary adjustments and complete your annual tax return using compatible MTD software.

Your final return must include relevant income, allowances, reliefs and other information needed to calculate your tax liability.

The normal submission deadline remains 31 January following the end of the tax year.

Requirement 4: Continue paying your tax on time

MTD does not automatically replace the standard Self Assessment payment timetable.

You must continue paying Income Tax and National Insurance by the applicable deadlines, including payments on account where required.

Quarterly updates can help you estimate your tax position during the year, but they do not create four quarterly Income Tax payment deadlines.

5. What are the Making Tax Digital quarterly deadlines for 2026/27?

The standard Making Tax Digital quarterly submission deadlines for 2026/27 are 7 August 2026, 7 November 2026, 7 February 2027 and 7 May 2027.

The final 2026/27 tax return must normally be submitted by 31 January 2028.

MTD quarterly update dates for 2026/27

Important: The first MTD deadline has already passed

As at 23 September 2026, the first quarterly deadline of 7 August 2026 has passed.

If you were required to join MTD in April 2026 but have not submitted your first update, you should check your registration status, prepare your digital records and submit the outstanding update.

HMRC has confirmed that penalty points will not be issued for late quarterly updates during the 2026/27 tax year. However, affected taxpayers must still complete their quarterly updates before they can submit their annual tax return.

What are calendar update periods?

If your business accounting period runs from 1 April to 31 March, you may use calendar update periods instead of the standard tax-year periods.

For example, the first calendar update covers 1 April to 30 June, while the first standard update covers 6 April to 5 July.

Both updates have the same submission deadline of 7 August.

Your chosen update periods should be configured correctly in your software before you send your first quarterly update.

Are MTD quarterly updates cumulative?

Yes. HMRC’s current MTD for Income Tax system requires each quarterly update to include cumulative income and expense totals from the start of the relevant reporting year.

For example, your second standard update covers the period from 6 April to 5 October, rather than only the transactions between 6 July and 5 October.

Cumulative reporting also allows corrected records to be reflected in later updates without routinely resubmitting every earlier update.

6. What records must sole traders keep under Making Tax Digital?

Sole traders must keep digital records of the income and expenditure relating to each business within the scope of MTD.

The records must contain the necessary transaction details and allow your compatible software to produce accurate quarterly summaries.

Essential digital records for sole traders

HMRC requires appropriate digital transaction records, but this does not mean that every supporting invoice or receipt must be scanned or stored as a digital image under the MTD income tax rules.

You should retain supporting evidence in accordance with the applicable record-keeping requirements.

Can you continue using Excel spreadsheets?

Yes. You can use spreadsheets for MTD digital record keeping if you connect them to compatible software capable of making the required HMRC submissions.

This is commonly known as bridging software.

For example, a freelance designer could maintain an Excel spreadsheet containing business income and expenses, then use compatible bridging software to submit the required quarterly updates.

You do not necessarily need to abandon spreadsheets or purchase a complete accounting software package. However, your chosen combination must meet the relevant MTD requirements.

What are digital links?

Digital links allow information to move electronically between different software products used for your MTD records and submissions.

For example, a linked spreadsheet formula, an appropriate electronic file transfer or a direct software connection may satisfy the digital linking requirement.

Where digital links are required, manually copying figures between systems after the relevant records have been submitted is not an acceptable substitute for a compliant digital transfer.

How long must sole traders keep their records?

Sole traders generally need to retain business records for at least five years after the 31 January Self Assessment submission deadline for the relevant tax year.

For example, records for the 2026/27 tax year would normally need to be kept until at least 31 January 2033.

Longer retention may be necessary in certain circumstances, including ongoing HMRC enquiries or late tax returns. MTD changes the required record-keeping format for affected taxpayers but does not remove the underlying obligation to retain adequate supporting records.

Software type	How it works	Suitable for
Full accounting software	Maintains business records, categorises transactions and supports MTD submissions	Sole traders who want an integrated bookkeeping system
Spreadsheet and bridging software	Connects existing digital spreadsheet records to HMRC-compatible submission software	Businesses already using spreadsheets
Free MTD-compatible software	Provides qualifying MTD functions, often with usage or feature restrictions	Sole traders with straightforward accounting needs
Accountant-managed software	Allows an authorised accountant or bookkeeper to maintain records and manage reporting	Sole traders who prefer professional assistance

Find HMRC-compatible MTD software

Check recognised software options before choosing a bookkeeping or tax return solution.

1. Check your qualifying income.

   Review your gross self-employment and property income for the relevant tax year. Confirm your MTD start date and check whether any exemption applies.

2. Confirm your registration status.

   Sign in to your HMRC online account and check whether you have already been signed up for MTD for Income Tax.

3. Choose compatible software.

   Select an accounting or bridging solution that supports your business records, quarterly updates and annual tax return.

4. Connect your software to HMRC.

   Follow your software provider’s instructions to authorise the connection using the appropriate HMRC credentials.

5. Set up your business records.

   Enter your relevant business details, income sources and accounting information. Confirm the correct reporting periods.

6. Prepare your digital transactions.

   Record all relevant income and expenses from the applicable MTD start date, including any earlier transactions that must be entered retrospectively.

7. Submit your quarterly updates and annual return.

   Use your software to meet the applicable MTD reporting deadlines and complete your annual tax obligations.

Check your MTD exemption eligibility

Read HMRC’s guidance on eligibility, applications and digital exclusion.

Date	Payment
31 January 2027	Outstanding 2025/26 liability and first 2026/27 payment on account, if required
31 July 2027	Second 2026/27 payment on account, if required
31 January 2028	Outstanding 2026/27 balancing payment and first 2027/28 payment on account, if required

Feature	MTD for VAT	MTD for Income Tax
Relevant taxpayers	VAT-registered businesses	Qualifying sole traders and landlords
Main records	VAT-related digital records	Self-employment and property income and expenses
Reporting	VAT returns for relevant VAT periods	Quarterly updates and an annual tax return
Software	MTD for VAT-compatible software	MTD for Income Tax-compatible software
Payment requirements	Existing VAT payment rules	Existing Income Tax and NI payment rules

13. How can sole traders prepare for Making Tax Digital in 2026/27?

The most effective way to prepare for Making Tax Digital is to confirm your start date, choose suitable software and establish a consistent digital bookkeeping process.

Waiting until the first quarterly deadline to organise an entire reporting period can make compliance more difficult.

Practical Making Tax Digital preparation checklist

How much time should you allow for MTD bookkeeping?

The time required depends on your transaction volume, business complexity and existing bookkeeping system.

A sole trader with a small number of monthly transactions may be able to maintain accurate records through regular weekly bookkeeping.

A business with multiple income sources, several bank accounts, employees or VAT obligations may require more frequent accounting reviews.

Consider setting aside a recurring appointment to check your records, categorise expenses and reconcile transactions.

Accfirm tip: Regular bookkeeping makes it easier to identify missing invoices, incorrect expense categories and unexpected changes in profitability before they affect your tax return.

14. What are the most common Making Tax Digital mistakes sole traders should avoid?

The most common MTD mistakes involve checking the wrong income threshold, assuming VAT registration covers Income Tax reporting and misunderstanding quarterly submission requirements.

Frequently asked questions about Making Tax Digital for sole traders

Is Making Tax Digital compulsory for all sole traders?

No. MTD for Income Tax is compulsory for sole traders and landlords who exceed the relevant qualifying income threshold and are not exempt.

The requirements began in April 2026 for qualifying income above £50,000, with further phases scheduled for April 2027 and April 2028.

Do I need Making Tax Digital if I earn less than £30,000?

You are not generally required to join MTD for Income Tax in April 2027 if your relevant qualifying income for 2025/26 did not exceed £30,000.

However, individuals whose qualifying income exceeds £20,000 in 2026/27 will generally be required to use MTD from April 2028, unless exempt.

Can I use Making Tax Digital if my income is below the threshold?

Yes. Eligible sole traders can choose to sign up voluntarily before MTD becomes compulsory for them.

Voluntary participation can help you become familiar with digital record keeping and quarterly submissions.

However, you should review the registration conditions, software requirements and applicable penalty arrangements before joining.

Do I need to submit five tax returns under MTD?

No. Making Tax Digital requires four quarterly updates for each relevant business and one annual tax return.

The quarterly updates contain income and expense summaries. They are not separate annual tax returns and do not require you to calculate a final annual tax liability every three months.

Can I continue using Excel for Making Tax Digital?

Yes. You can continue using Excel or another suitable spreadsheet system if you connect your digital records to software that meets the applicable MTD submission requirements.

Your records and the required data transfers must comply with HMRC’s digital record-keeping and linking rules.

Does Making Tax Digital replace Self Assessment?

MTD changes the process through which affected sole traders submit information and complete their tax return.

It does not remove the obligation to report relevant taxable income or pay Income Tax and National Insurance.

The annual return for a tax year in which you are required to use MTD must generally be completed using compatible MTD software.

Do sole traders have to submit quarterly updates if they have no income?

If you are within the scope of MTD and the relevant business remains subject to quarterly reporting, you generally still need to submit the required update even if there was no trading income during the reporting period.

Where a business has permanently ceased, you should report the cessation and follow HMRC’s requirements for that income source.

Can my accountant submit Making Tax Digital updates for me?

Yes. An authorised accountant or bookkeeper can manage digital records, submit quarterly updates and complete your MTD tax return on your behalf.

You should agree which records you will provide, who will maintain your software and who will be responsible for each submission deadline.

What happens if I started MTD late in 2026?

If you were required to join MTD from April 2026 but have not yet completed the necessary steps, check your HMRC registration status and prepare digital records for the relevant period.

You should submit any outstanding quarterly updates. HMRC is not issuing penalty points for late quarterly updates for 2026/27, but the reporting requirements remain in place.

Does Making Tax Digital apply to sole traders outside the UK?

Residence and domicile can affect which income sources count towards MTD qualifying income.

For example, a non-UK resident may have UK property income that falls within the relevant rules.

Sole traders with cross-border income should review HMRC’s specific qualifying income and exemption guidance rather than assuming that all overseas income is automatically included or excluded.

How can Accfirm help sole traders with Making Tax Digital?

Making Tax Digital introduces additional reporting and record-keeping responsibilities for many UK sole traders. Choosing suitable software, maintaining accurate records and meeting quarterly deadlines can require changes to your existing accounting processes.

Accfirm provides accounting and tax support for UK sole traders, freelancers, contractors and small business owners.

Our sole trader accountants  can help you understand your Making Tax Digital obligations and organise your business accounting around the applicable HMRC requirements.

Our accounting services can support you with MTD eligibility assessments, software selection, digital bookkeeping, quarterly submissions, Self Assessment tax returns, Income Tax calculations and National Insurance planning.

If you also receive rental income or operate multiple businesses, professional accounting support can help you understand how your combined income affects your MTD obligations.

Final thoughts: Get your sole trader business ready for Making Tax Digital

Making Tax Digital for Income Tax is already in effect for qualifying sole traders and landlords with income above the first-phase threshold.

The April 2027 and April 2028 expansions will bring more self-employed individuals within the digital reporting system.

For affected sole traders, the essential requirements are straightforward: keep accurate digital records, use compatible software, submit quarterly updates and complete your annual tax return by the applicable deadline.

Start by checking your qualifying income and registration status. Then review your existing bookkeeping process and choose software that meets your business needs.

If you are unsure about your MTD start date, income calculations or reporting responsibilities, speak with a qualified accountant before your next submission deadline.