Making Tax Digital, explained for sole traders

Checked against gov.uk on 4 July 2026. When the rules change, this page changes.

Making Tax Digital for Income Tax is HMRC's new way for self-employed people to keep records and report their income. From 6 April 2026, sole traders with qualifying income over £50,000 must keep their business records digitally and send HMRC a summary update every quarter. Lower income thresholds join in 2027 and 2028. The annual tax return doesn't disappear, and the dates you pay tax don't change.

That's the whole thing in three sentences. The rest of this page is the detail: who's in and when, what a digital record actually is, the deadlines, the penalties, and what to do about it.

What's actually changing

Two things.

Your records must be digital. Every business transaction gets recorded in software: the amount, the date, and the category it belongs to. A shoebox of receipts or a paper cash book no longer counts as your records. A spreadsheet can qualify, but it has to be kept properly and connected to something that can submit.

You report quarterly, not just once a year. Four times a year your software sends HMRC an update. It's a summary, not an inspection: the update contains totals for each income and expense category, and HMRC doesn't receive individual records like a receipt or an invoice. After your first MTD year, the annual tax return itself is completed and submitted through your MTD software too.

Does it apply to you?

It depends on your qualifying income: your gross income from self-employment and property added together, before any expenses come off. Each threshold is tested against a specific tax year:

The part that catches people out: qualifying income adds your trade and your property income together, gross. A £40,000 trade plus £15,000 of rent is £55,000 of qualifying income. That's over £50,000, so you'd be in the first wave, even though neither number looks like it on its own.

Three softeners worth knowing. You don't start until after you've submitted your first Self Assessment tax return. HMRC writes to tell you when you're in, though it stays your responsibility to check. And some people are exempt altogether, for example if you're digitally excluded.

Under the thresholds? Then MTD stays voluntary for you for now. The thresholds are tested year by year, so a good year can bring you in for a later start date.

What changes day to day

For every business transaction, you record three things, digitally: the amount, the date, and the category. HMRC says to create the record as close to the date of the transaction as possible, and it must exist before that quarter's update deadline at the latest.

In practice the categories are the familiar Self Assessment ones: cost of goods, car and travel costs, rent and insurance, repairs, phone and office costs, advertising, and so on. Below £90,000 of turnover you're allowed to record in less detail, just income or expense. But the moment turnover reaches £90,000 you must categorise everything in full before your next update, and sorting a year of "miscellaneous" in a hurry is nobody's idea of a good week. Categorising properly from day one means there's no wall to hit, and your expenses come out right.

The deadlines

The standard update periods all start from 6 April, and each deadline follows the period end by just over a month:

Notice the "covers" column: updates are cumulative. Each one runs from the start of the tax year to the end of the period, not just the last three months. Spot a mistake from the spring? Fix the record and your next update carries the correction. Nothing to resend.

Prefer calendar quarters, ending on 31 March, 30 June and so on? There's an election for that in your software, chosen before the year's first update. The deadlines stay the same.

And the tax return stays: due by 31 January following the end of the tax year, submitted through your MTD software once you're in. The dates you pay tax don't change.

The penalties

Miss a quarterly update or tax return deadline and you get a penalty point. Reach four points and it's a £200 fine, with further fines for continued lateness.

One dated fact in your favour: HMRC has said it will not apply penalty points for late quarterly updates in the first tax year, 2026 to 2027, while everyone finds their feet. The tax return deadline keeps its own penalties as normal, and the easement is for that year only.

How to get ready

1. Work out your qualifying income. Self-employment turnover plus gross property income, before expenses. Your 2024 to 2025 figures decide the April 2026 wave, your 2025 to 2026 figures decide April 2027.
2. Start keeping digital records now. Amount, date, category, for every business transaction. Starting before you're forced to means the habit is boring by the time it's law.
3. Deal with receipts when they happen. A receipt captured on the day is a record. A receipt in a glovebox is a job for January.
4. Put four dates in your calendar. 7 August, 7 November, 7 February, 7 May.
5. Pick software that does the recording for you. This is where we're biased, so here it is straight: SoleTax turns a snapped receipt, a drive to a job, or an invoice into an MTD-ready digital record automatically, categorised and dated, with a running estimate of the tax you owe. It doesn't submit quarterly updates to HMRC yet. That's planned for January 2027, before the biggest wave starts, and your records stay ready either way.

Quick answers

Sources: gov.uk guidance on who needs to use Making Tax Digital for Income Tax, creating digital records, sending quarterly updates, and HMRC's penalty guidance. All checked on 4 July 2026.