HELPFUL GUIDE

What Is Making Tax Digital?

A simple guide to Making Tax Digital for sole traders, landlords and small businesses.

Making Tax Digital for Sole Traders: What You Need to Know

Making Tax Digital (MTD) has been talked about for years, but for many sole traders it is suddenly feeling very real.

From April 2026, MTD for Income Tax Self Assessment (ITSA) becomes mandatory for an estimated 780,000 self-employed people and landlords. The shift from one annual tax return to quarterly digital updates is a significant change.

If your business or property income is over £50,000, these rules will affect you first. If your income is between £30,000 and £50,000, you will join the system in April 2027.

This guide explains what MTD actually means, who it affects and answers some of the most common questions in plain English.

What Is Making Tax Digital?

Making Tax Digital is HMRC's long-term plan to modernise the tax system.

Instead of keeping paper records or spreadsheets and filing one annual tax return, you will need to:

• Keep digital records

• Use MTD-compatible software

• Submit quarterly updates to HMRC

• Complete a Final Declaration at the end of the tax year

This is a change to the entire process, not simply a new form to complete.

Who Needs To Comply?

From 6 April 2026, MTD applies to:

• Sole traders with business income over £50,000

• Landlords with property income over £50,000

If you have more than one business, each trade will require its own quarterly updates.

If you have both self-employment and rental income, both count towards the income threshold.

What Actually Changes?

Digital Record Keeping

All business transactions must be recorded using HMRC-approved accounting software.

Quarterly Updates

You will send four quarterly updates to HMRC each year.

These are summaries rather than full tax returns, but they must be accurate and submitted on time.

Final Declaration

At the end of the year, you will submit a Final Declaration through your accounting software. This replaces the traditional Self Assessment tax return.

Quarterly Filing Deadlines

For businesses using the standard tax year (6 April to 5 April), quarterly updates are due by:

QuarterPeriod CoveredSubmission Deadline16 April – 5 July 20267 August 202626 July – 5 October 20267 November 202636 October 2026 – 5 January 20277 February 202746 January 2027 – 5 April 20277 May 2027

Many software providers also offer calendar quarter reporting periods, although the filing deadlines remain the same.

Frequently Asked Questions

Do I Really Need Software?

Yes.

MTD requires software that can send information directly to HMRC.

Spreadsheets alone will not be compliant unless they are connected through approved bridging software.

What Software Should I Use?

There are several HMRC-approved options available.

Popular choices include:

• Xero

• QuickBooks

• Sage

• FreeAgent

The right option depends on your business and how you prefer to work.

I'm Worried About Quarterly Deadlines

This is one of the most common concerns.

Quarterly updates are generally simpler than a tax return, but they do require more regular bookkeeping throughout the year.

If you are used to doing everything in January, it can feel like a big adjustment initially.

What Counts As Digital Records?

You do not need to scan every receipt.

You simply need to record transactions digitally within approved software.

For each transaction you should record:

• Date

• Amount received or paid

• Category of income or expense

• VAT information (where applicable)

I Have More Than One Business

Each trade will require separate quarterly submissions.

You will also need to ensure all businesses are connected correctly to your HMRC account.

Will My Accountant Handle Everything?

Not necessarily.

Unless bookkeeping and quarterly submissions are included within your service package, you will still be responsible for keeping your records up to date.

What Happens If I Miss A Deadline?

HMRC uses a points-based penalty system.

Penalty points are issued when deadlines are missed and financial penalties apply once certain thresholds are reached.

The good news is that HMRC has confirmed a softer approach during the first year of implementation while businesses adjust.

Do I Still Need To Submit A Tax Return?

Yes, although it will now be completed through a Final Declaration rather than the traditional Self Assessment process.

Can I Still Use Spreadsheets?

Not on their own.

Spreadsheets must be linked to HMRC through approved bridging software.

What If My Income Falls Below £50,000?

If your income remains below the threshold for three consecutive years, you may be able to leave the MTD system.

What If I Have Both Rental Income And Self-Employment Income?

Both income sources count towards the threshold and both require digital records.

Will MTD Make Tax Easier?

Once everything is set up properly, many businesses find it does.

Regular updates provide better visibility of your finances, reduce surprises and improve cash-flow planning throughout the year.

How To Get Ready Now

1. Choose Suitable Software

Select software that is already MTD-compatible and suitable for your business.

2. Start Keeping Digital Records

Even if MTD does not apply to you yet, getting into good bookkeeping habits now will make the transition much easier.

3. Speak To Your Accountant

A short conversation now can save a lot of stress later.

How I Can Help

If you are unsure where to start, I can help with:

• Setting up MTD-compatible software

• Ongoing bookkeeping

• Quarterly submissions

• Final Declarations

• Digital record-keeping training

Need Help Applying This To Your Business?

Every business is different.

If you are unsure how Making Tax Digital affects your business, I'd be happy to help.