Making Tax Digital is something that cannot be ignored, especially as it’s officially been implemented as of April 6th 2026. MTD for Income Tax requires all sole traders to digitally record-keep their income and expenses and provide quarterly reporting to HMRC.
Whether you’re new as a sole trader or not, Making Tax Digital is something you need to understand and get ready for as soon as you become eligible.
1. Check Your Eligibility
MTD for Income Tax is mandatory if you’re a sole trader with a total annual turnover exceeding £50,000.
This threshold applies to income rather than profit. You can choose to join early if you wish, although that option is voluntary.
The second phase is £30,000 as the threshold, which is expected to follow on 6th April 2027. The threshold will then be lowered again in 2028, which, at this point, most freelancers and sole traders will be part of the MTD for Income Tax.
2. Choose Compatible Software
It’s imperative that you’re using compatible software that connects directly to HMRC in order to keep digital records. Popular choices include QuickBooks, Kletta and Sage.
If you’re currently using spreadsheets, then you’ll want to use bridging software to connect them to HMRC’s systems.
Separating your finances is also a must in order to keep business and personal transactions separate for easier digital recording.
3. Sign Up And Set Up
You must be signed up for Making Tax Digital for Income Tax on the GOV.UK site. You’ll also want to check that your Government Gateway account is active and linked to your NI number and UTR.
You’ll also want to connect the software and authorise it to communicate with HMRC systems. This is easy enough to do and helps making tax digital for self assessment easier.
4. Manage Deadlines
It’s essential to manage the deadlines when reporting income and expenses to HMRC every quarter. You’ll also need to submit the final end-of-year declaration, too.
Quarterly updates have deadlines around 7th August, 7th November, 7th February and 7th May. The final declaration and deadline are 31st January 2027 for the 2025/2026 tax year.
There are penalties for missing these deadlines. A new points-based system applies for missed deadlines, with penalties occurring once a certain threshold of points has been reached.
5. Prepare For Any Changes
Finally, be prepared for changes. Digital bookkeeping and quarterly updates may take more time than just annual reporting. You should expect additional costs for software subscriptions and check the requirements through the resources provided on the government website.
Preparing for MTD is important as a sole trader. You’ll want to do your research if you haven’t already, to get a good understanding of how it all works. There are lots of software as well as resources out there so that you can manage your future taxes effectively.
If you’re a sole trader, then you’ll want to shift across to this way of doing your taxes sooner rather than later. Ultimately, most people will have to follow this way of doing taxes eventually.
Thanks for stopping by!
Magda
xoxo