Making Tax Digital for Sole Traders

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) changes how sole traders record income and report to HMRC. Instead of one annual Self Assessment return, you keep digital records and send HMRC a short update every three months, plus a final declaration after the tax year ends.

Who has to use MTD ITSA

MTD ITSA applies to self-employed sole traders (and landlords) based on qualifying income — gross trading income before expenses — in a previous tax year:

• From 6 April 2026 — qualifying income above £50,000.
• From 6 April 2027 — qualifying income above £30,000.
• From 6 April 2028 — qualifying income above £20,000.

If you trade as a sole trader and also have rental income, the two are added together for the threshold test.

What you have to do

1. Keep digital records of every business transaction — date, amount and category — in MTD-compatible software.
2. Send a quarterly update to HMRC reporting cumulative income and expenses for the tax year to date.
3. Submit a final declaration by 31 January after the tax year, replacing the Self Assessment return. This is where you confirm totals, claim reliefs and finalise the tax bill.

The payment dates do not change: balancing payment plus first payment on account by 31 January, second payment on account by 31 July.

Quarterly update periods

Standard quarters end 5 July, 5 October, 5 January and 5 April, with deadlines of 7 August, 7 November, 7 February and 7 May respectively. You can elect to use calendar quarters (30 June, 30 September, 31 December, 31 March) for simpler bookkeeping.

Choosing software

You must use HMRC-recognised MTD software, or bridging software linked to a spreadsheet. Unfiled supports transaction capture and categorisation. Check its current filing options before relying on it for MTD Income Tax updates; VAT support does not establish Income Tax compatibility.

Exemptions

You can apply for exemption if it is not reasonably practicable to use digital tools — for example because of age, disability, location or religious reasons. Exemption is not automatic; HMRC reviews each request.

What to do now

• Check your 2024/25 trading income against the £50,000 threshold — that's the figure that brings you in for April 2026.
• Move bookkeeping into MTD-ready software well before your start date.
• Set calendar reminders for each quarterly deadline.

For the broader regime see Making Tax Digital explained, and for the year-end mechanics see Self Assessment tax returns: a complete guide.

The thresholds use qualifying gross self-employment and property income for 2024/25, 2025/26 and 2026/27 respectively. See HMRC’s start-date rules.