The sole traders' guide to Making Tax Digital 2026
Last editedDec 20254 min read
The biggest shake-up to personal tax since the introduction of self-assessment is fast approaching. Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) fundamentally changes how sole traders and landlords like you report your income to HMRC.
This guide breaks down exactly what Making Tax Digital for self-assessment means, who it affects, the critical deadlines you need to know, and the steps you must take to ensure compliance starting in April 2026.
What does Making Tax Digital mean for me?
What is MTD? Making Tax Digital is the UK government's programme to modernise the tax system by making it easier for sole traders and businesses to keep records digitally and interact with HMRC online.
What is ITSA? Income Tax Self Assessment is the existing system used by millions of self-employed individuals and landlords to report earnings and calculate tax bills annually.
The big change
Making Tax Digital replaces the current system of one annual tax return with a new system with more frequent, digital updates. This new way of submitting income tax moves towards a "near-real-time" view of your position and reduces the risk of errors, and eliminates the administrative burden of waiting until the end of the year to calculate your income tax.
Does Making Tax Digital Affect Me?
If you’re a sole trader or a landlord, Making Tax Digital for Income Tax Self Assessment applies to you.
Limited companies are not affected (they will fall under Making Tax Digital for Corporation Tax, which has a separate timeline). General partnerships are also not included yet, but will be in the future.
Income impacts when you start
When you need to start using the new Making Tax Digital system is determined by your qualifying income within a tax year, which is your combined gross income (revenue, before expenses are deducted) from all self-employment and property sources. What if I have multiple income sources? If you have income from an employer (PAYE income), dividends, or savings interest, this income is not included.
If you are both a sole trader and a landlord, your income from both sources is added together to determine if you meet the threshold.
The timeline breakdown
Using the income reported on your last filed self-assessment return will determine when you need to start using the new digital system.
| Qualifying gross income (earnings before expenses) | Making Tax Digital start date | Based on income from tax year |
|---|---|---|
| Over £50,000 | April 2026 (start of 2026/27 tax year) | 2024/25 Tax Return |
| £30,000 to £50,000 | April 2027 (start of 2027/28 tax year) | 2025/26 Tax Return |
| £20,000 to £30,000 | April 2028 (start of 2028/29 tax year) | 2026/27 Tax Return |
Exemptions
If you are required to use the new Making Tax Digital system, there are some reasons why you might be exempt.
Digital exclusion: If it is not "reasonably practicable" for you to use digital tools due to factors like age, disability, remote location (poor internet), or religious beliefs, you can apply to HMRC for an exemption.
Automatic exemptions: Certain groups are automatically exempt, including trustees, personal representatives, and individuals without a national insurance number.
The three core requirements of Making Tax Digital
When you’re required to start using the new system, you must perform three compliance actions digitally each tax year.
Digital record keeping
Making Tax Digital means that you must keep digital records of your business or property income and expenses. This involves recording every single transaction with three mandatory pieces of information:
The amount of the income or expense.
The date of when you received the income or made the expense
The category (these are the same as your self-assessment categories).
The core principle here is ensuring your digital records are reliably connected to your quarterly updates. This means you can't simply calculate your figures and type them into HMRC’s system. More on this in the “Get ready with compatible software” section below
If you use spreadsheets, you must have a "digital link" (often done via bridging software that connects your spreadsheet to HMRC) to automatically transfer the figures. In short, once data is digital, its movement must be automated—manual copy-pasting between systems is not allowed.
Any records of income or expenses that are not for self-employment (think PAYE earnings, dividends and savings) and software not related to your income or expenses (like software that takes bookings) do not need to be digitally linked. Quarterly updates
Instead of filing one return, you must submit four quarterly summaries of your income and expenses for each business or property source.
What are quarterly updates? They are simple summary figures of income and expenditure taken directly from your digital records. No complex accounting adjustments (like depreciation - e.g. the value lost on an asset over time, like a van or computer) are required at this stage.
The quarterly filing deadlines
These deadlines are fixed, regardless of your business year-end, so make sure not to miss them.
| Quarter | Period | Deadline |
|---|---|---|
| One | 6th April – 5th July | 7th August |
| Two | 6th July – 5th October | 7th November |
| Three | 6th October – 5th January | 7th February |
| Four | 6th January – 5th April | 7th May |
The end-of-year process
After the fourth quarterly update, you must complete the final year-end process.
End of period statement (EOPS): This is where you make all necessary accounting and tax adjustments (e.g., claiming capital allowances - tax relief for businesses that let you deduct some or all of the value of an item from your profits before you pay tax, simplified expenses, or accruals/prepayments). An EOPS is filed for each business or property source.
Final declaration: This replaces your existing self-assessment tax return. It consolidates all business and property data from the EOPS, adds details of any other personal income (PAYE, dividends, interest, etc.), and finalises your total tax and national insurance liability.
The final deadline: The final declaration must be submitted by 31st January following the end of the tax year (e.g., 31st January 2028 for the 2026/27 tax year).
Get ready with compatible software
Choosing the right software
You’ll need to choose a software that is compatible with HMRC’s systems. The HMRC has a list of recognised accounting and bookkeeping software for you to choose from. See their software finder tool to find officially recognised software.
Using spreadsheets
If you prefer to use a spreadsheet, you can, but it is not sufficient on its own. You will need to use bridging software—a separate programme that reads your spreadsheet data and uses the digital link to submit the required figures to HMRC.
Working with an accountant
Your accountant can handle the entire process for you, including signing you up for Making Tax Digital, managing your digital records, and submitting all your quarterly and annual updates. They can use their own compliant software to manage your tax affairs.
Penalties for non-compliance
HMRC is introducing a new points-based penalty system for Making Tax Digital for non-compliance.
One point is incurred for each missed submission (quarterly update or final declaration).
Reaching a set number of points (depending on your submission frequency) results in a £200 fine.
Penalties for late payment also apply.
What’s next?
Making Tax Digital for self-assessment is a significant and complex change, but the shift towards digital record-keeping offers the benefit of real-time financial insight.
If your qualifying income was over £50,000 in the 2024/25 tax year, you are required to comply starting in April 2026.
Action points:
Check your income: Confirm your gross income from all sole trader and property sources for the 2024/25 tax year now.
Speak to an accountant: Discuss your readiness and identify the best digital record-keeping system for your business.
Review software options: Start testing Making Tax Digital-compatible software now to ensure a smooth transition before your deadline arrives.
