Making Tax Digital for sole traders 2026: what you actually need to do
Making Tax Digital for Income Tax Self Assessment starts on 6 April 2026. If you are a sole trader or landlord earning over £50,000, this affects you directly. No more stuffing receipts in a shoebox and handing everything to your accountant in January. From April, you will need to keep digital records and file quarterly updates with HMRC. Here is what that actually means in practice.
Quick answer
From 6 April 2026, sole traders and landlords with qualifying income over £50,000 must keep digital records and submit quarterly updates to HMRC using MTD-compatible software. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. You still file an annual declaration by 31 January.
The rollout timeline
HMRC is phasing this in over three years based on your qualifying income. Qualifying income means your combined gross self-employment income and property income before expenses. Not your profit. Your turnover.
| Phase | Start date | Who is affected |
|---|---|---|
| Phase 1 | 6 April 2026 | Qualifying income over £50,000 |
| Phase 2 | 6 April 2027 | Qualifying income over £30,000 |
| Phase 3 | 6 April 2028 | Qualifying income over £20,000 |
So if you are a plumber turning over £55,000 a year, you are in Phase 1. A sparky earning £35,000 hits Phase 2. An electrician just starting out on £22,000 falls into Phase 3. Check the full details on gov.uk.
What counts as qualifying income
This is the bit that trips people up. Qualifying income is your gross income from self-employment plus your gross property income, before deducting any expenses. If you are a carpenter earning £40,000 from your trade and receiving £15,000 in rent from a buy-to-let, your qualifying income is £55,000. You are in Phase 1.
Employment income does not count. Investment income does not count. It is only self-employment and property income combined.
What actually changes for you
Three things change. The way you keep records, how often you report to HMRC, and the software you use.
Digital record keeping
You must keep your business records in MTD-compatible software. Every sale, every expense, every invoice. No more paper ledgers as your primary record. You can still keep paper receipts, but they need to be entered into your software.
The records must include the amount, the date, and the category of each transaction. For sales, you also need the customer name. For expenses, the supplier name.
Quarterly submissions
Instead of one annual Self Assessment return, you will make four quarterly submissions plus a final declaration. The quarterly updates summarise your income and expenses for each period.
| Quarter | Period | Submission deadline |
|---|---|---|
| Q1 | 6 April - 5 July | 7 August |
| Q2 | 6 July - 5 October | 7 November |
| Q3 | 6 October - 5 January | 7 February |
| Q4 | 6 January - 5 April | 7 May |
| Final declaration | Full tax year | 31 January (following year) |
The quarterly updates are not full tax returns. Think of them as summaries. Your total income for the quarter, your total expenses, broken down by category. Your software does most of the work if your records are up to date.
The final declaration replaces your current Self Assessment return. This is where you confirm everything, make any adjustments, and calculate your final tax position. The deadline stays at 31 January, same as now.
Penalties for late submission
HMRC is introducing a points-based penalty system. Each late submission earns you a point. Hit the threshold (currently 4 points for quarterly obligations) and you get a £200 penalty. After that, every late submission costs £200 until you bring your compliance back on track.
Late payments also attract penalties: 2% of tax owed at 15 days late, another 2% at 30 days, then 4% annualised from day 31. Plus interest at the Bank of England base rate plus 2.5%. At current rates, that works out to around 7.25%.
What software do you need?
You need MTD-compatible software that can submit quarterly updates directly to HMRC. HMRC maintains a list of recognised software, and it includes options at every price point.
For sole traders with straightforward affairs, HMRC offers free software. For tradespeople who need invoicing, quote management, and payment tracking alongside their tax records, a tool like InvoiceAdept handles both in one place.
Your software needs to do the following:
- Record income and expenses digitally with dates and categories
- Store transaction records for the required retention period
- Submit quarterly updates to HMRC via their API
- File your final declaration
- Provide a year-end summary for your annual tax calculation
Spreadsheets on their own will not cut it. You can use a spreadsheet to track your numbers, but it must be linked to compatible software (called "bridging software") that handles the HMRC submission. Honestly, at that point you are better off just using proper accounting software from the start.
What you should do right now
If your qualifying income is over £50,000, the clock is ticking. April 2026 is not a distant deadline. Here is a practical checklist:
Invoice your customers in 30 seconds
InvoiceAdept helps UK tradespeople send professional invoices, track payments, and stay MTD-compliant — all from your phone.
Start for free — no card needed
MTD readiness checklist
- Check your qualifying income. Add your gross self-employment and property income. If it is over £50,000, you are Phase 1.
- Choose your software. Pick an MTD-compatible tool now so you have time to learn it. InvoiceAdept is free for sole traders.
- Start keeping digital records, even before April. Get into the habit. Every invoice, every expense, logged digitally.
- Talk to your accountant. They need to know your plan. Some accountants handle the quarterly submissions for you; others expect you to do it.
- Sign up for HMRC's MTD for ITSA. You will need to register through your Government Gateway account. HMRC will start sending sign-up invitations in early 2026.
Common misconceptions about MTD
"I will pay more tax under MTD." No. MTD changes how you report, not how much you owe. Your tax calculation stays the same. The rates, allowances, and thresholds are unchanged.
"Quarterly returns mean quarterly tax payments." Not exactly. The quarterly updates are information submissions, not payment requests. Your payment dates remain the same: 31 January and 31 July for payments on account. HMRC hopes that more frequent reporting will help people budget better, but nobody is forcing you to pay quarterly.
"My accountant handles everything so MTD does not affect me." Your accountant can submit the quarterly updates on your behalf, but the records still need to be digital and kept in compatible software. Someone has to enter the data. If that is your accountant, expect their fees to go up.
"I can just use a spreadsheet." Only if it is linked to bridging software that submits to HMRC. A standalone Excel file will not meet the requirements.
"The trading allowance exempts me." The £1,000 trading allowance lets you earn up to £1,000 without registering for Self Assessment. It does not exempt you from MTD if your total qualifying income exceeds the threshold. They are separate rules.
How MTD connects to your invoicing
Every invoice you send is a record of income. Under MTD, that income needs to be logged digitally with the date, amount, and customer details. If you are already using invoicing software, you are halfway there. Your invoices feed directly into your income records.
The tradespeople who will struggle most are those still invoicing by email or on paper, then reconciling everything manually at year end. Under MTD, that approach is not just inefficient. It is non-compliant.
If you are looking for a free invoicing tool that keeps your records MTD-ready, try InvoiceAdept. Every invoice is stored digitally, categorised, and ready for quarterly reporting.
Frequently asked questions
When does MTD for Income Tax start?
Phase 1 starts 6 April 2026 for sole traders and landlords with qualifying income over £50,000. Phase 2 (over £30,000) starts April 2027, and Phase 3 (over £20,000) starts April 2028.
What is qualifying income?
Qualifying income is your combined gross self-employment income and gross property income before deducting any expenses. Employment income and investment income are not included.
Do I need to pay tax quarterly under MTD?
No. The quarterly submissions are information returns, not payment requests. Your tax payment dates remain 31 January and 31 July for payments on account. The final declaration and any balancing payment are due by 31 January following the end of the tax year.
Can I use a spreadsheet for MTD?
Only if you pair it with MTD-compatible bridging software that handles the HMRC submission. A standalone spreadsheet will not meet the requirements. Most tradespeople will find it simpler to use purpose-built software that handles records and submissions in one place.
What happens if I miss a quarterly deadline?
HMRC uses a points-based penalty system. Each late submission earns a point. Once you accumulate 4 points, you receive a £200 penalty, and every subsequent late submission also costs £200 until you get back on track.
MTD is coming whether you are ready or not. The tradespeople who prepare now, choosing their software and getting digital records in order, will barely notice the transition. Those who leave it until March 2026 will be scrambling. Start with InvoiceAdept and get your invoicing and records sorted in one free tool.
Ready to get started?
InvoiceAdept helps UK tradespeople send invoices, track payments, and stay compliant — all from one place.
Start for freeNo credit card required