Making Tax Digital (MTD) for sole traders represents a significant change to how self-employed individuals and landlords in the UK manage their tax affairs. From April 2026, many sole traders and landlords with income above specific thresholds must use digital tools to keep records and submit quarterly updates to HMRC.
This guide explains everything you need to know about MTD for sole traders, from deadlines to software requirements, which will help you to prepare for this shift in tax reporting.
It is important to understand about Making Tax Digital for every self employed individual. No matter whether you are established or just starting, MTD for sole traders will impact how you manage business finances and interact with HMRC.
What is Making Tax Digital for Sole Traders and Landlords?
MTD for sole traders and landlords is a UK government plan to make the tax system easier and modern. If you are wondering about what MTD stands for, it means Making Tax Digital, which means doing all tax work digitally.
For sole traders and landlords, the traditional annual self-assessment process will be replaced with quarterly digital updates.
Instead of filing one tax return per year, MTD for sole traders requires four quarterly updates plus a final annual declaration.
The main goal is to make everything quicker, simpler and more accurate by going fully digital by 2030.
How will MTD for Income Tax transform your tax reporting?
You must keep digital records all year using approved software. Then submit quarterly summaries of income and expenses directly to HMRC.
This quarterly approach gives you real time tax position visibility and spreads work throughout the year instead of rushing in January.
MTD for sole traders changes the way self employed individuals work with HMRC. You will move from once-yearly reporting to regular quarterly contact.
When does MTD for Sole Traders and Landlords start?
The making tax digital dates depend on income levels. Knowing when MTD for sole traders affects your business is important for proper planning.
MTD implementation timeline by income threshold:
- April 2026: Required if self-employment and property income exceeds £50,000
- April 2027: Required if income exceeds £30,000
- April 2028: Required if income exceeds £20,000
Source : GOV.UK MTD Income Tax threshold update
If you wonder when does MTD for income tax start for you?
It depends on your total income from 2024-25. This includes all self-employment profits plus any property rental income before costs. If you made over £50,000 in 2024-25, you must start MTD for sole traders from April 6, 2026.
Voluntary sign-up benefits: Early adoption is available now, allowing you to test the system and become comfortable with new processes before they become mandatory.
What are the MTD requirements and rules?
The MTD rules apply to self-assessment registered individuals with qualifying income above thresholds.
MTD for sole traders covers both self-employment income and UK property income through MTD ITSA system (MTD for Income Tax Self Assessment).
Even if you’re employed but also have self-employment income, you’ll need to comply if your combined qualifying income exceeds the thresholds.
Source: ICAEW TAXguide 01/25
Key requirements under MTD for Sole Traders
- Keep business records digitally using MTD-compatible software.
- Send four quarterly updates with income and expense summaries.
- File the final annual declaration by January 31st.
- Ensure all submissions go through approved software manual entries via the HMRC portal will no longer be accepted.
Source : GOV.UK MTD Software Requirements
Who can get exemptions from MTD?
According to the Government of UK, making tax digital exemptions are limited but include:
- Individuals with qualifying income under £20,000 (subject to further government consultation).
- Those who are digitally excluded due to age, disability, location or religious beliefs.
- People without a National Insurance number as of January 31st before the tax year.
- Qualifying care providers (foster carers, shared lives carers).
Checklist for meeting Quarterly update requirements:
- Confirm your total gross income exceeds MTD thresholds.
- Choose and set up HMRC-approved MTD software compatible with your needs (e.g., Xero, QuickBooks, FreeAgent, Sage).
- Digitally record all income, expenses, and receipts throughout each quarter.
- Prepare and submit quarterly summaries on time.
- File your final declaration for the tax year by January 31.
- Retain digital records securely for at least six years.
- Consider professional help to ensure smooth compliance.
What are the consequences of Non-Compliance?
What happens if I don’t comply with MTD? The penalty system uses a points-based approach:
- One penalty point for each missed quarterly deadline.
- £200 fine when you accumulate four penalty points.
- Late payment penalties remain unchanged from the current system.
- Points reset annually, but financial penalties must still be paid.
MTD for sole traders non-compliance carries serious consequences, making proper preparation and ongoing compliance management essential.
Which software is needed for MTD for Sole Traders?
Choosing the right software is key for MTD for sole trader’s compliance. You must use HMRC recognised software, doing it manually and using spreadsheets is no longer accepted.
What is the best software for Making Tax Digital?
The best software for making tax digital depends on your needs and budget. MTD for sole traders software ranges from free basic versions to premium ones costing £50+ per month:
- Free: HMRC Basic Records, some limited versions
- Mid-price (£10-30/month): QuickBooks, Xero, FreeAgent
- Premium (£30-50+/month): Sage, advanced features
No matter which software you pick, make sure it can:
- Connect to your bank and pull in your transactions automatically.
- Let you take photos of receipts and save them easily.
- Send your tax updates to HMRC without any extra steps.
To see which ones are officially approved, check the HMRC website for the latest list.
How can I get ready for MTD for Sole Traders?
Preparing for Making Tax Digital does not have to be complicated. Just follow these four simple steps:
- Check if this applies to you: Look at your income from last year. If it’s over the limit, you need to start MTD.
- Choose the right software: You can’t just use spreadsheets anymore. Get software that HMRC approves, like Xero or QuickBooks. These programs send your information to HMRC for you.
- Go digital with your records: Stop keeping paper receipts in boxes. Use your new software to take photos of receipts and record everything on your computer or phone as you go.
- Get professional help: You don’t need to handle this yourself. An MTD accountant can do everything from setting up your software to sending all your reports to HMRC.
These steps will get you ready before the deadline hits.
What is the MTD submission timeline?
The new system has three different types of MTD submissions you need to make through compatible software.
- Quarterly Updates: You must send these reports to HMRC four times a year. The standard quarters end on July 5, October 5, January 5 and April 5, but you can switch to calendar quarters if that works better for your business. Everyone has the same deadlines one month after each quarter ends.
- Quarter 1 (April 6 – July 5): Deadline is August 7.
- Quarter 2 (July 6 – October 5): Deadline is November 7.
- Quarter 3 (October 6 – January 5): Deadline is February 7.
- Quarter 4 (January 6 – April 5): Deadline is May 7.
- End of Period Statement (EOPS): This is your final yearly submission where you adjust your figures for the year. Here you can claim things like capital allowances or fix any accounting issues.
- Final Declaration: This submission replaces the self-assessment tax return. You’ll add any other income sources (savings interest, dividends, etc.) and complete your tax position for the year. The deadline stays January 31st of the following tax year.
Rather than annual filings, you’ll submit smaller reports quarterly, followed by a final declaration.
What is the difference between MTD for VAT and MTD for Sole Traders?
Understanding the difference between MTD for VAT and MTD for sole traders is important, as many businesses face both requirements.
These systems serve different purposes and have different compliance obligations.
MTD for VAT overview:
- Already active since 2019-2022 (phased rollout).
- Applies to businesses with £90,000+ annual turnover.
- Requires VAT return submissions only.
- Uses separate software that may not handle income tax requirements.
MTD for Income Tax differences:
- Starting 2026 based on £50,000+ income threshold (reducing over time).
- Covers self-employment and property income.
- Requires quarterly updates plus annual declaration.
- May need different or additional software from VAT systems.
If you’re already complying with MTD for VAT, you might need separate software or an integrated solution that handles both requirements.
Benefits of MTD for Sole Traders for your business
MTD for sole traders gives you several benefits beyond just following the rules:
Real time business insights:
- See how your business is doing: Quarterly reporting lets you check your business every few months.
- Plan your tax better: Know what tax you’ll owe during the year instead of surprises in January.
- Make fewer mistakes: Software automation minimises calculation, so there is less chance of getting things wrong.
- Handle your money better: Regular updates help you save money for tax payments all year.
Making Tax Digital changes tax from an annual problem into a helpful business tool that shows you how your money is doing all year.
Challenges with MTD for Sole Traders
The transition to MTD for sole traders presents certain difficulties. Understanding potential challenges helps you prepare appropriate solutions:
Common Implementation problems:
- Learning new things: Getting used to new software takes time.
- Additional costs: You’ll pay for software each month and maybe pay your accountant more.
- More deadlines: Four reports every three months plus your yearly form means more dates to remember.
- Technology dependency: You must have good internet and computers to follow the rules.
Knowing these problems now means you can plan for them and make the change easier.
How to Sign Up for MTD for Sole Traders
Is making tax digital compulsory for sole traders? Yes, if your income exceeds the thresholds. The MTD for sole traders registration process requires:
Sign-Up Requirements:
- Your Government Gateway user ID and password (used for current self-assessment)
- Business details, including name, address, and start date
- National Insurance number
- Choice of accounting period and method (cash or accrual)
- MTD for sole traders compatible software already set up
You can complete sign-up through the official government website or authorize your accountant to handle the process on your behalf. Early registration provides valuable time to test systems before compliance becomes mandatory.
Conclusion
MTD for sole traders is the biggest change to self-employment tax reporting in many years.
Yes, you’ll need to buy software and learn new ways of doing things, but getting ready early helps you handle the change well and might even help you manage your business money better.
Start by checking if this affects you, look at different software options, and think about getting help from a professional if you need it.
The secret to Making Tax Digital success is getting ready early people who start now will find April 2026 much easier than those who wait until the last minute.
Common Questions about MTD for Sole Traders & Landlords
Is making tax digital compulsory for sole traders?
Yes, MTD for sole traders is required if you make over the income limits. Below these amounts, it’s optional.
How do I handle Capital Gains Tax under MTD?
Capital Gains Tax (CGT) reporting is not included under MTD for Income Tax as of 2026. CGT must still be declared annually on your self-assessment tax return outside the quarterly updates. HMRC may revise this in the future.
What records do I need for MTD?
MTD for sole traders needs all business income and costs kept digitally in approved software. This includes sales, purchases, receipts and bank records.
How much does MTD software cost?
MTD for sole traders software costs from free basic versions to £50+ monthly. Most sole traders find good options for £10-30 per month.
When does MTD for income tax start?
MTD for sole traders starts April 6, 2026, for people making £50,000+ from 2024-25. Lower limits apply in later years.
What happens if I don’t comply with MTD?
Not following MTD for sole traders rules gives you penalty points. One point per missed deadline, with £200 fines after four points.
Do sole traders need to sign up for making tax digital?
MTD for sole traders sign-up is required for businesses over income limits. Smaller businesses can join voluntarily.
