Making Tax Digital: a checklist for sole traders

Making Tax Digital (MTD) is a government initiative that’s set to transform the way sole traders and landlords manage and report their taxes.

MTD for Income Tax became mandatory for individuals with a business or property income over £50,000 in April 2026. The scope widens further to include those with business or property income over £30,000 from April 2027.

In this guide, we’ll explain what MTD means for sole traders, outline what you need to do to stay compliant, and show you how to make the most of its time-saving benefits.

Key takeaways

• You need to start using MTD for income tax from April 2027 if your total income from self-employment or property was more than £30,000 for the 2025/26 tax year 

• Under MTD rules, you must submit four quarterly updates plus a year-end declaration each tax year

• You must keep digital records and make all submissions through MTD-compatible software 

• You can sign up for MTD through the government website, or ask your accountant to do this on your behalf

What is Making Tax Digital for sole traders? 

Making Tax Digital (MTD) is a government initiative aimed at modernising the tax system by requiring sole traders (and those receiving property income) to keep digital records, use compatible software, and submit quarterly updates to HMRC. This replaces the traditional once-a-year tax return with a more streamlined, real-time approach.

Previously, a sole trader only needed to send one self-assessment tax return each year via the HMRC online portal, by mail or through software.

However, as the new MTD rules comes into force for more people, you can no longer use the online portal or submit your tax return by paper when you reach the income threshold. Instead, you must do everything digitally through software. You also need to submit four quarterly updates, as well as one final declaration by 31 January.

Why is this happening now?

MTD is part of the government’s push to modernise the tax system, cut down on costly errors, and support economic growth.

By keeping digital records throughout the year, you can save time, reduce stress when it comes to filing your tax return, and gain a clearer, more accurate view of your business finances.

The government believes it should also help close the tax gap and recover the substantial tax revenue lost each year to issues such as tax avoidance and evasion.

When does Making Tax Digital for sole traders start? 

The Making Tax Digital roll out will be as follows:

• If your total income from self-employment (and property letting) was more than £50,000 before deducting expenses or taxes in your 2024-25 tax return, you need to use MTD for income tax from 6 April 2026

• If your total income from self-employment (and property letting) is more than £30,000, you need to use MTD for income tax from 6 April 2027

• If your total income from self-employment (and property letting) is more than £20,000, you need to use MTD for income tax from 6 April 2028

Note that MTD for VAT has been in place since 2019 and was fully rolled out in 2022. This means that if you’re a business (including sole traders) with a turnover above the VAT threshold of £90,000 a year, you should already have registered for VAT and be complying with MTD requirements. 

How to get ready for Making Tax Digital 

The steps below can help ensure you’re ready for MTD.

1. Check whether Making Tax Digital applies to you

You may have already received a letter from HMRC informing you of these changes, or it might be on its way. This letter contains a QR code that you can scan to find out whether you’re affected. 

Alternatively, you can head to the GOV.UK website and use the government’s online service to check whether MTD applies to you based on your qualifying income. 

For now, if all the following apply, you should've started follow Making Tax Digital requirements on 6 April 2026:

• You’re an individual registered for self-assessment

• You had income from self-employment or property, or both, before 6 April 2025

• You have a qualifying income of more than £50,000 in the 2024-2025 tax year

💡 Editor insight: 2 in 5 SMEs unprepared for Making Tax Digital as first filing deadline approaches

2. Understand what is changing

If MTD applies to you, it’s important to have a clear understanding of what your MTD obligations are so you remain compliant. 

As well as keeping digital records, you need to submit both quarterly updates and a final declaration to HMRC. Your quarterly updates must summarise your total income and expenses for that period, but they require less information than your annual tax return.

As they are cumulative, you can include any corrections to past information throughout the year.

You then need to submit your final year-end declaration and pay your tax by 31 January. This is where you must share details of all other taxable income, including investments and savings interest.

You can also claim relevant tax reliefs here, such as pension contributions. 

Read more: What business expenses can self-employed people claim?

3. Choose MTD-compatible software

The GOV.UK website lists all MTD-compatible software that’s currently available. When choosing software, you should consider factors such as whether you want to keep using any record-keeping software you already use.

If you do, you need to look for bridging software, because this connects your current accounting software or spreadsheet to software that works with MTD.

Also, keep in mind that some types of software can submit both quarterly updates and your year-end tax return, while others can only do one, so check first. 

4. Start keeping digital records now

Once you’ve chosen your software, it’s worth starting to keep digital records now (if you don’t already). This can make the transition a lot smoother. 

You might also want to think about opening a business bank account if you don’t have one. 

5. Speak to an accountant

If you have an accountant, it’s worth discussing MTD with them to ensure you fully understand the requirements and have the right accounting software.

If you don’t have an accountant, you might feel more comfortable with the process if you hire one. You can also authorise your accountant to submit your quarterly updates and your tax return on your behalf if you prefer. 

Read more: Making Tax Digital for landlords: what you need to know

How do I sign up for MTD?

You can sign up for MTD on the GOV.UK website.

You may choose to sign up voluntarily to test the service now, but either way you still need to submit a self-assessment tax return for the 2025-26 tax year as normal and within the usual deadlines.

To sign up voluntarily, you need the user ID and password you received when you signed up for self-assessment. You may also need to provide further proof of ID. 

If you have an accountant, you can ask them to sign up on your behalf. 

If you don't want to start MTD voluntarily, you can sign up at a later date when your income brings you into scope.

When do I need to submit my quarterly updates?

The due date for each quarterly submission is the 7th day of the following month, as follows:

• 6 April to 5 July – due by 7 August

• 6 July to 5 October – due by 7 November

• 6 October to 5 January – due by 7 February

• 6 January to 5 April – due by 7 May

How will Making Tax Digital benefit sole traders? 

Although the transition to Making Tax Digital may seem a little daunting, there are several benefits to the new process:

Better tax planning

By submitting quarterly updates, you can receive an estimate of how much tax you need to pay based on your reported income, giving you more time to prepare and save for taxes

Improved financial insight

A lot of MTD-compatible software offers built-in reporting features that can significantly improve how you manage your business finances. You can automatically generate real-time cash flow projections, profit and loss statements, tax summaries and balance sheets, giving you a clear, up-to-date view of your financial position at any time

Reduced admin

Using MTD-compatible software should also reduce the amount of time you need to spend on admin, because it can automate processes such as tax calculations, quarterly statements and your financial declaration

Less chance of errors

Using software lowers the risk of making a mistake in your tax calculation and tax return, helping you avoid incurring penalties. What’s more, because you must submit quarterly statements, you have regular opportunities to spot and correct any issues before making your final declaration to HMRC

What challenges might sole traders face? 

Despite the benefits, navigating Making Tax Digital is also likely to present challenges. These include:

Cost of software

MTD requires the use of compatible accounting software, which can be an added expense, especially for sole traders used to spreadsheets or paper records. Although some free software is available, you may need to pay a fee to access additional features

More deadlines

As a sole trader, you currently only need to submit a tax return once a year. But under MTD, you need to submit updates to HMRC each quarter, as well as your annual tax return. It’s important to stay on top of these extra deadlines to avoid penalties

Steep learning curve

Moving from manual or spreadsheet-based systems to digital platforms can be daunting, particularly for those with limited tech experience. Transferring existing records into new systems can also be time-consuming and complex