Making Tax Digital for Income Tax
What sole traders actually need to know.
If you've been hearing a lot about Making Tax Digital lately and you're not quite sure what it means for you, you're not alone. It's one of the most common questions in sole trader communities right now - and the good news is it's simpler than it sounds.
What is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD for IT) is a change to the way sole traders and landlords report their income to HMRC. Instead of completing one annual self assessment return, you'll need to submit quarterly updates throughout the year using HMRC-recognised software.
Think of it as reporting your income and expenses four times a year instead of once - with a final end of year declaration to wrap things up.
Does it affect me?
It depends on your income. The rules are being introduced in stages:
From April 2026 - sole traders and landlords with gross income over £50,000 must comply
From April 2027 - the threshold drops to £30,000
From April 2028 - anyone with gross income over £20,000 will be required to comply
Your gross income means your total income before expenses - not your profit. So if you turnover more than £50,000 from self employment, MTD applies to you now.
If you're below £20,000, you're currently exempt though this may change in future.
Do I need to buy software?
Not necessarily. There are several free HMRC-recognised tools that meet MTD requirements, including Pie Tax, TaxNav, and Zoho Books (free under £50k turnover). You don't need to pay for expensive accounting software if your affairs are straightforward.
If you're already using QuickBooks, Xero, FreeAgent or Sage, the good news is these are all MTD compatible — you may just need to switch on the MTD features within your existing account.
You can browse MTD-compatible tools in our MTD Software directory.
What do I actually need to do?
If MTD applies to you now or soon, here's what to focus on:
Check your gross income against the thresholds above
Choose an HMRC-recognised software tool
Start keeping digital records of your income and expenses
Submit your first quarterly update by the deadline (7 August 2026 for the April to June quarter)
Don't panic
The biggest thing to remember is that MTD doesn't change how much tax you pay — it just changes how and when you report it. If you're already keeping reasonable records and filing your self assessment on time, the transition should be straightforward.
If you're not sure which software to use, our MTD Software directory lists all the main options with pricing and key features so you can compare them easily.
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