Making Tax Digital for sole traders became mandatory for the first group of eligible taxpayers on 6 April 2026. If your qualifying income from self-employment and property was more than £50,000 in the 2024/25 tax year, you may now need to maintain digital records and send quarterly updates to HMRC using compatible software.
The rules change how affected sole traders keep records and report their income. However, they do not replace the need to complete an annual tax return or pay tax by the existing deadline.
This guide explains who must use Making Tax Digital for Income Tax, how qualifying income is calculated and what sole traders should do during 2026.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is an HMRC reporting system for sole traders and landlords.
It requires eligible individuals to:
- Maintain digital records of business or property income and expenses
- Use software that works with Making Tax Digital
- send summary updates to HMRC every quarter
- Complete an annual tax return using compatible software
- Pay the tax owed by the normal payment deadline
Making Tax Digital does not mean you must send HMRC copies of every invoice and receipt four times a year. Quarterly updates provide summary totals based on the digital records maintained during each reporting period.
You will still need to review your complete annual position, make relevant accounting and tax adjustments, claim any available reliefs and declare other taxable income through your annual tax return.
Who Must Use Making Tax Digital for Sole Traders in 2026?
Making Tax Digital for Income Tax is being introduced in stages.
| Start date | Relevant qualifying income |
| 6 April 2026 | More than £50,000 |
| 6 April 2027 | More than £30,000 |
| 6 April 2028 | More than £20,000 |
The relevant figure is normally the total gross qualifying income received from self-employment and property before deducting expenses.
For the first mandatory phase, HMRC generally looks at the qualifying income reported in your 2024/25 Self Assessment tax return. If that income was more than £50,000, you may need to use MTD from 6 April 2026.
HMRC is expected to review the information in taxpayers’ returns and contact people who appear to fall within the rules. However, not receiving a letter does not remove your responsibility to check whether you need to comply.
You can use HMRC’s Making Tax Digital eligibility guidance to check when the rules apply.
Is the Threshold Based on Income or Profit?
The threshold is based on qualifying gross income, not taxable profit.
This distinction is important because a sole trader may have turnover of more than £50,000 but make a much lower profit after business expenses.
For example:
| Calculation | Amount |
| Self-employment income | £58,000 |
| Allowable business expenses | £24,000 |
| Profit before other adjustments | £34,000 |
In this example, the relevant starting figure for MTD eligibility is the £58,000 gross income, not the £34,000 profit. Subject to the remaining conditions, the individual may have needed to enter MTD from 6 April 2026.
The threshold test is not the same as calculating the amount of Income Tax due. Expenses, allowances and other adjustments remain relevant when the final taxable profit is calculated.
What Counts as Qualifying Income?
Qualifying income generally includes gross income from:
- Sole trader businesses
- Freelance work
- Self-employed contracting
- Professional or consultancy work
- UK property businesses
- Overseas property businesses, where applicable
If you have more than one sole trader business, the qualifying income from those businesses is generally combined. Property income must also be considered where relevant.
Suppose a person receives:
- £36,000 from freelance consultancy
- £12,000 from an online shop
- £7,000 in property income
The combined qualifying income is £55,000. Looking at any one activity separately could give the wrong result.
Care is needed when calculating the threshold if you have several income sources, jointly owned property, a change of business structure or income that may be exempt. AccountancyNet can help you assess your figures through its Self Assessment support.
What Income Is Not Normally Included?
Not every source of personal income forms part of MTD qualifying income.
The threshold calculation does not generally include:
- Employment income taxed through PAYE
- Dividends
- Interest from savings
- Pension income
- Partnership income
- Income from a limited company
- Capital gains
- Certain exempt sources of income
These sources may still need to appear on your annual tax return. The fact that they are not included in the MTD threshold does not necessarily mean they are free from tax.
A limited company is also legally separate from its owner. Income earned by the company is not treated as the director’s sole trader income merely because the director owns the business.
The exact treatment depends on the source and circumstances. Sole traders should not exclude income solely because it is paid into a different bank account or earned under another trading name.
Does MTD Apply If You Run More Than One Business?
Yes, it can.
HMRC assesses your combined qualifying income when deciding whether you exceed the applicable threshold. You cannot normally assess each sole trade separately and apply the full threshold to each one.
Once you are within MTD, you must maintain appropriate digital records for each qualifying income source. Quarterly information may need to be divided between your different businesses and property activities.
Using one software account may be practical, but the records must still distinguish between the activities. This allows the correct income and expense totals to be reported for each source.
A clear bookkeeping structure becomes particularly important for people who:
- Trade under more than one business name
- Run a service business and an online shop
- Receive both trading and rental income
- Sell through several ecommerce platforms
- Operate more than one property business
What Changes Under MTD for Sole Traders?
The most significant change is the frequency and method of record keeping and reporting.
Before MTD, some sole traders gathered receipts and reconstructed their accounts near the Self Assessment deadline. That approach becomes harder to maintain under quarterly reporting.
Affected sole traders must establish a continuing process for:
- Recording income and expenses digitally
- Reviewing transactions for errors or missing information
- Assigning transactions to suitable categories
- Submitting quarterly summary updates
- Reconciling the records before the annual return
- Completing the final tax calculations and declarations
MTD therefore creates a regular compliance cycle. It does not require a complete set of annual accounts every quarter, but inaccurate or incomplete bookkeeping can carry errors into each update.
What Digital Records Must You Keep?
You must maintain digital records of relevant business income and expenses.
Depending on the business, these records may include:
- Date of each transaction
- Amount received or paid
- Relevant income or expense category
- Sales invoices
- Purchase invoices
- Receipts
- Bank transactions
- Ecommerce platform settlements
- Payment processor fees
- Refunds and chargebacks
- Mileage or travel records
- Asset purchase information
The software record does not always need to contain an image of every receipt. However, supporting documents should still be retained where required to demonstrate what the transaction was and why it was recorded in a particular way.
Digital records should be created close to the time of the transaction. Waiting until the quarterly deadline increases the risk of omitted sales, duplicated costs and incorrect expense claims.
Professional bookkeeping support can help establish consistent records before the information is submitted to HMRC.
What Does a Digital Link Mean?
If information moves between different parts of your record-keeping system, the transfer should normally happen digitally.
For example, you may maintain transactions in a spreadsheet and use separate bridging software to submit the required figures. The figures should move between the systems through an appropriate digital process rather than being repeatedly copied by hand.
The aim is to preserve the accuracy and integrity of the records.
A digital process could involve:
- Direct software integration
- Importing and exporting a compatible file
- Bank feeds
- Application programming interface connections
- Linked spreadsheet cells
- HMRC-recognised bridging software
The correct arrangement depends on the software and complexity of the business.
Do You Need MTD-Compatible Software?
Yes. Eligible taxpayers must use software that works with Making Tax Digital for Income Tax.
HMRC does not provide a complete bookkeeping platform for sole traders. You must choose suitable commercial or free software, or use a spreadsheet with compatible bridging software where that arrangement meets the requirements.
Before selecting a product, consider whether it can:
- Create and maintain digital records
- Categorise business income and expenses
- Connect securely to relevant bank accounts
- Record invoices and receipts
- Manage more than one business
- Handle property income if required
- Record ecommerce transactions
- Submit MTD quarterly updates
- Support the annual tax return
- Allow access for your accountant
- Export your data if you later change provider
A basic product may be suitable for a sole trader with a small number of monthly transactions. A business selling through Amazon, Shopify, eBay or Etsy may require stronger integrations and reconciliation tools.
AccountancyNet has experience working with ecommerce businesses and can help assess how sales, marketplace deductions and payment settlements should pass into the accounting records. This experience is outlined in the AccountancyNet company profile.
HMRC maintains guidance for choosing compatible MTD software. Check that a product supports MTD for Income Tax specifically, rather than assuming that support for MTD for VAT is sufficient.
When Are MTD Quarterly Updates Due?
The standard quarterly periods and submission deadlines are:
| Reporting period | Submission deadline |
| 6 April to 5 July | 7 August |
| 6 April to 5 October | 7 November |
| 6 April to 5 January | 7 February |
| 6 April to 5 April | 7 May |
These are cumulative standard update periods. Calendar update periods may also be available, subject to HMRC’s rules and the capabilities of your software.
The quarterly update contains summary information produced from your digital records. HMRC describes the updates as a way to report the income and expenses recorded during the relevant period.
The first standard deadline for someone who entered MTD on 6 April 2026 was 7 August 2026. The following deadlines are 7 November 2026, 7 February 2027 and 7 May 2027.
You can review the periods in HMRC’s quarterly update guidance.
Are Quarterly Updates the Same as Tax Returns?
No. Quarterly updates are not four complete tax returns.
They provide summary figures from the records maintained during the year. You do not normally make every annual accounting adjustment or claim every relief as part of each quarterly update.
Your final annual tax return remains the point at which you:
- Review the complete year
- Correct relevant errors
- Make accounting adjustments
- Consider capital allowances
- Claim eligible reliefs
- Include other taxable income
- Include relevant gains
- Confirm the final tax position
Quarterly figures should therefore not be treated as a confirmed tax bill. They may help you monitor business performance and prepare for tax, but the final liability can change after year-end adjustments and other income are considered.
Do You Still Need to Submit a Self Assessment Tax Return?
You must still complete the annual process through MTD-compatible software.
If you entered MTD for the 2026/27 tax year, your tax return for that year is due by 31 January 2028. Any Income Tax and National Insurance due must normally also be paid by the applicable payment deadline.
You must separately complete the ordinary Self Assessment process for 2025/26 by 31 January 2027 because that year ended before the mandatory MTD period began.
This creates an overlap during the transition:
- The 2025/26 return is completed under the previous process.
- Digital MTD records are maintained for 2026/27.
- Quarterly updates are sent during 2026/27.
- The 2026/27 tax return is completed by 31 January 2028.
Sole traders should plan for both obligations rather than assuming MTD removes the need to finish the previous tax year.
What Happens If You Miss an MTD Deadline?
HMRC has introduced a transitional approach for quarterly updates in the first mandatory year.
For 2026/27, HMRC states that it will not charge penalties for missing quarterly update deadlines. However, affected taxpayers must still maintain digital records and send the required quarterly updates before submitting their annual tax return.
This first-year treatment does not remove:
- The obligation to use MTD
- The requirement to maintain digital records
- The obligation to complete outstanding updates
- Penalties that may apply to a late annual tax return
- Interest or penalties relating to late tax payments
For later years, late submission penalties operate through a points-based system. A taxpayer generally receives a point for each missed quarterly deadline. When the relevant threshold is reached, a £200 penalty can apply, followed by further £200 penalties for additional missed obligations while at the threshold.
The rules can vary according to the type and frequency of the obligation. HMRC’s MTD penalty guidance should be checked before relying on a particular treatment.
Can Sole Traders Be Exempt from MTD?
Some people may qualify for an exemption, but an exemption should not be assumed.
HMRC may consider whether it is reasonable and practical for a person to use digital tools. Relevant circumstances can include:
- Disability
- Age
- Religious beliefs
- Remoteness of location
- Inadequate internet access
- Other factors creating genuine digital exclusion
Being unfamiliar with accounting software is not automatically enough. HMRC may expect a person to use reasonable support, training, an accountant or alternative software before concluding that digital compliance is not practical.
Certain taxpayers may also be automatically exempt under specific rules. If you believe an exemption applies, check the current criteria and follow HMRC’s application process.
An exemption from MTD does not normally remove the requirement to declare taxable income. You may still need to complete a Self Assessment return through another permitted method.
How to Prepare for Making Tax Digital in 2026
Sole traders already within the first MTD phase should act promptly.
1. Check your qualifying income
Review the relevant Self Assessment return and calculate gross income from all sole trader and property sources. Do not use profit after expenses as the threshold figure.
2. Confirm your start date
Check whether your income puts you into the April 2026, April 2027 or April 2028 phase. Consider changes to your income sources and whether any special rules apply.
3. Choose compatible software
Confirm that the software supports MTD for Income Tax. Do not rely only on support for MTD for VAT.
4. Establish digital records
Import or enter transactions from 6 April 2026. If you are setting the system up partway through the year, you may need to create records retrospectively from the beginning of the tax year.
5. Separate business and private transactions
A separate business bank account is not always legally required for a sole trader, but it can make record keeping clearer. Personal transactions should not be recorded as business costs merely because they appear in an account also used for trading.
6. Reconcile your records
Compare recorded sales and expenses with bank statements, invoices, marketplace reports and payment processor statements.
7. Prepare for quarterly deadlines
Create reminders well before 7 August, 7 November, 7 February and 7 May. Allow time to identify missing information and correct errors.
8. Plan for the annual return
Quarterly updates do not complete your tax return. Continue retaining supporting information needed for year-end adjustments, allowances and other income.
9. Ask for professional support where needed
An accountant can help determine whether MTD applies, configure the records, review software choices and manage authorised submissions.
How AccountancyNet Can Help
MTD compliance depends on accurate records throughout the year, not just submitting four sets of figures.
AccountancyNet supports startups, sole traders, micro businesses and ecommerce businesses across England and Wales. Support can include:
- Reviewing whether you fall within MTD
- Checking qualifying income
- Establishing digital bookkeeping
- Reviewing software suitability
- Reconciling business records
- Preparing quarterly information
- Completing Self Assessment requirements
- Supporting VAT compliance where applicable
- Identifying missing or inconsistent records
The appropriate process will depend on your income sources, transaction volume and existing systems. AccountancyNet provides fixed quotations based on the work required, without promising a particular tax saving or outcome.
To discuss your MTD position, contact AccountancyNet and provide details of your self-employment, property income and current record-keeping method.
Frequently Asked Questions
Does every sole trader have to use Making Tax Digital in 2026?
No. The first mandatory phase generally applies to sole traders and landlords with qualifying gross income over £50,000. Lower thresholds apply from April 2027 and April 2028.
Is the £50,000 threshold based on turnover or profit?
It is based on qualifying gross income before expenses, not taxable profit. Income from different sole trades and relevant property activities may need to be combined.
Do I need to register if HMRC has not written to me?
You remain responsible for checking whether MTD applies. Not receiving a letter does not automatically mean you are outside the rules.
Can I continue using spreadsheets?
Spreadsheets may be possible if they are used with compatible bridging software and the complete process meets HMRC’s digital record and submission requirements.
Do quarterly updates mean I pay tax four times a year?
MTD quarterly updates do not by themselves change the normal Income Tax payment timetable. They report summary information, while the final tax position is established through the annual return.
Does MTD apply to limited companies?
The 2026 MTD for Income Tax rules discussed in this guide apply to qualifying individuals with self-employment or property income. A limited company is a separate legal entity and is not treated as the director’s sole trade.
What if I started keeping digital records late?
If you were required to use MTD from the beginning of the tax year, you may need to create digital records covering the period from 6 April and complete any outstanding updates. Seek advice promptly rather than waiting for the annual deadline.
Can my accountant submit MTD updates for me?
An authorised accountant can support your MTD registration, records, quarterly updates and annual return. You still need to provide complete and accurate business information on time.
Take the Next Step
If your combined sole trader and property income exceeded £50,000, check your MTD position now. Confirm your start date, choose appropriate software and make sure your digital records cover the correct period.
AccountancyNet can review your circumstances and help establish a practical reporting process for your business. Speak to AccountancyNet about MTD, bookkeeping and Self Assessment support.
This article provides general information based on HMRC guidance available in July 2026. Tax rules and guidance can change. Obtain advice based on your individual circumstances before taking action.