Making Tax Digital for Income Tax: What Sole Traders Need
Making Tax Digital for Income Tax is no longer a future plan. Since 6 April 2026, sole traders and landlords with qualifying income over £50,000 have had to keep digital records and send quarterly updates to HMRC. Lower income groups follow in 2027 and 2028. This explainer covers who is affected, what quarterly updates really involve and how to get ready. It is general information, not tax advice, so check GOV.UK or an accountant for your own position.
Key takeaways
- MTD for Income Tax has applied since 6 April 2026 to sole traders and landlords with qualifying income over £50,000.
- The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.
- Qualifying income is your gross self-employment income plus gross property income, based on an earlier tax year, not your profit.
- You must keep digital records, send quarterly updates through compatible software and submit a final declaration by 31 January after the tax year.
- Late submissions are penalized under a points-based system, so build a simple quarterly routine early.
For years, many sole traders kept a shoebox of receipts and a spreadsheet, then pulled everything together for their Self Assessment return shortly before the January deadline. Making Tax Digital, usually shortened to MTD, changes that rhythm. HMRC now wants records kept digitally through the year and summaries sent every quarter.
The idea is not new. MTD for VAT has applied to all VAT-registered businesses since April 2022. MTD for Income Tax extends a similar approach to the income tax side, starting with higher earners and widening over three years. If you are already in, this guide helps you check your routine. If you join in 2027 or 2028, it shows you what to prepare.
Who is in MTD for Income Tax and when
MTD for Income Tax is being phased in by income. The phases apply to individuals who are sole traders, landlords or both.
| Start date | Who must join | Status in October 2026 |
|---|---|---|
| 6 April 2026 | Qualifying income over £50,000 | Already in, first tax year under way |
| April 2027 | Qualifying income over £30,000 | Joining next tax year, time to prepare |
| April 2028 | Qualifying income over £20,000 | Joining later, worth planning now |
Partnerships and limited companies are not part of these phases. A limited company files company accounts and Corporation Tax returns, which follow separate rules. Some individuals may be exempt, for example if HMRC accepts that they cannot practically use digital tools. If you think an exemption could apply to you, check GOV.UK and apply through the official process rather than simply not joining.
How qualifying income works
Qualifying income is the total of your gross income from self-employment and from property, before expenses. It is not your profit. HMRC uses figures from a Self Assessment return for an earlier tax year to decide whether you cross a threshold.
That has two practical effects. First, a sole trader with modest profits but high turnover can be in scope. Second, you may be brought in based on income from a year that has already passed, so you should check your past returns now rather than waiting for this year's figures.
Example
Imagine a self-employed electrician with gross sales of £36,000 and a profit of £21,000, plus no property income. Their qualifying income is the £36,000 gross figure, not the profit. Because that is over £30,000 but not over £50,000, they would expect to join from April 2027 if the relevant earlier tax year shows the same income. Now imagine a landlord who also freelances, with £18,000 of gross rental income and £16,000 of freelance income. Combined, their qualifying income is £34,000, which also points to April 2027.
What MTD for Income Tax requires
Once you are in, there are three core obligations.
1. Keep digital records
You must record your business income and expenses digitally, using software that works with MTD. Your software then groups those records into the categories HMRC asks for when you send each update. Paper records and handwritten ledgers are no longer enough on their own. A spreadsheet can still play a role if you connect it to HMRC through compatible bridging software.
2. Send quarterly updates
Every quarter, you send HMRC a summary of your income and expenses for each business, using compatible software. If you are a sole trader and a landlord, you send updates for each source. A quarterly update is a summary, not a tax return, and you do not need to make final adjustments such as all of your allowances at this stage.
3. Submit a final declaration
After the tax year ends, you finalize your figures, add any other income and reliefs, and submit a final declaration by 31 January after the tax year. This replaces the traditional Self Assessment return for people in MTD. It is the point where your tax bill for the year is confirmed.
Pro tip
Treat each quarterly update as a mini bookkeeping check. If you reconcile your records against your bank account every quarter, the final declaration becomes a short job instead of a January scramble, and you get a much earlier view of what you are likely to owe.
What quarterly updates mean in practice
The word "quarterly" worries a lot of sole traders, so it helps to be clear about what it does and does not mean.
- It is reporting, not a quarterly tax return. You send totals of income and expenses. Your tax for the year is still settled through the final declaration.
- The figures can be adjusted later. If you find a mistake, you can usually correct it in a later update or in the final declaration.
- Deadlines are fixed by HMRC. Each update has a submission deadline after the end of the quarter. Your software and your HMRC online account show the dates that apply to you.
- Your software does the sending. You do not upload anything to the HMRC website yourself. The software creates and submits the update for you.
- Payment dates are a separate question. MTD is about how you keep records and report. Check GOV.UK for how and when you pay, as payment rules follow their own timetable.
Penalties under the points-based system
Late submissions under MTD for Income Tax are penalized using a points-based system. Each late submission adds a point, and once you reach a set number of points within a period, a financial penalty applies. Points can expire if you stay compliant for long enough. Late payment of tax is handled separately. The exact rules are set out on GOV.UK, so read them once and then focus on never missing a deadline.
Common mistake
Assuming you are out of scope because your profit is below the threshold. Qualifying income is based on gross income, before expenses, from self-employment and property combined. Check the gross figures on your past returns before you decide MTD does not apply to you.
How to get ready: a step-by-step plan
Whether you are already in or joining in 2027 or 2028, these steps will get your routine in place.
- Work out your qualifying income. Add up gross self-employment and gross property income from your recent Self Assessment returns and compare it with each threshold.
- Check your start date. Use HMRC's online checker or your HMRC account, and read any letter HMRC sends you about MTD.
- Choose compatible software. HMRC publishes a list of software that works with MTD for Income Tax. Pick one that suits how you work, or bridging software if you prefer to keep a spreadsheet.
- Separate business and personal money. A dedicated business bank account makes digital records far easier, especially with software that imports bank transactions.
- Sign up for MTD for Income Tax. Follow the official GOV.UK process, or ask your accountant to do it for you as your agent.
- Set a quarterly routine. Book time in your calendar each quarter to update records, reconcile your bank and submit the update before the deadline.
- Plan the final declaration. Gather details of other income, pension contributions and reliefs well before 31 January.
Upsides for sole traders
- A clearer view of income and profit through the year
- Fewer last-minute January rushes
- Fewer lost receipts and missed expenses
- Earlier warning of a large tax bill
Challenges to plan for
- More frequent deadlines to track
- Software costs and set-up time
- A learning curve if you are used to paper records
- Points for late updates if your routine slips
If you work with an accountant
Many sole traders hand MTD to an accountant or bookkeeper. That can work well, but agree the details in writing. Decide who keeps the day-to-day records, who submits the quarterly updates, the date each quarter by which you will send your information and who handles the final declaration. Remember that you remain responsible for meeting the deadlines, even if someone else submits for you.
Your MTD for Income Tax checklist
- Calculate gross self-employment plus property income from recent returns
- Confirm whether you joined in April 2026 or join in 2027 or 2028
- Pick MTD-compatible software or bridging software
- Open or use a separate business bank account
- Sign up for MTD for Income Tax through GOV.UK or your agent
- Put every quarterly deadline in your calendar
- Reconcile records to your bank each quarter
- Prepare for the final declaration well before 31 January
- Set aside money for tax as you go
Frequently asked questions
Does MTD for Income Tax apply to limited companies?
No. Partnerships and limited companies are not included in the phases running from 2026 to 2028. Company directors may still be affected if they also have their own self-employment or property income above the thresholds.
Can I still use spreadsheets?
Yes, if you connect them to HMRC through compatible bridging software. The spreadsheet must hold your digital records, and the bridging software sends the quarterly updates and final declaration.
Do I pay tax every quarter under MTD?
Quarterly updates are a reporting requirement, not a quarterly tax bill. Check GOV.UK for the payment dates that apply to you, as payments follow their own rules.
I am VAT registered. Is this the same as MTD for VAT?
No. MTD for VAT has applied to all VAT-registered businesses since April 2022 and covers VAT returns. MTD for Income Tax is a separate requirement for income tax. Some software handles both.
Related reading
The bottom line
Making Tax Digital for Income Tax is now live for sole traders and landlords with qualifying income over £50,000, and it reaches the £30,000 group in April 2027 and the £20,000 group in April 2028. The core tasks are simple: keep digital records, send quarterly updates through compatible software and submit a final declaration by 31 January. A steady quarterly routine is the best way to avoid penalty points and January stress.
This article is general information, not tax advice. Thresholds, exemptions and deadlines can change, so check the latest guidance from HMRC on GOV.UK or speak to a qualified accountant about your own situation.
