Making Tax Digital for Sole Traders: What Changes and When

Written By Rob Holmes

‍Making Tax Digital (MTD) is now a reality for sole traders across the UK. If your income exceeds the threshold, you will need to start reporting your earnings to HMRC more frequently and digitally. This change is designed to make tax administration more efficient and reduce errors, but it also means adjusting to a new way of managing your tax affairs.

For sole traders, the most significant change is the introduction of quarterly reporting. Instead of submitting one annual tax return, you will now provide updates every three months. Finniston and Company can help you understand what this means for your business and ensure you are fully prepared.

What MTD Means for Sole Traders

Making Tax Digital for sole traders means moving from a single annual Self Assessment to a system of quarterly digital updates. You will still need to submit an annual return, but the process will now include four additional reports spread throughout the year.

The aim is to make tax reporting more accurate and up to date. By submitting information more frequently, you and HMRC will have a clearer picture of your financial position, which can help with budgeting and tax planning.

Income Thresholds and Dates

Making Tax Digital for Income Tax applies to sole traders with combined income above £50,000. This is measured on your qualifying income from the previous tax year, so the 2024/25 return determines whether you must join from April 2026. The threshold will drop to £30,000 from April 2027, and the government plans to extend it to £20,000 from April 2028, subject to legislation. If your income is below these thresholds, you will not be required to join MTD at this stage, though you can opt in voluntarily.

Key Dates for Sole Traders

  • April 2026: MTD for Income Tax begins.

  • 7 August 2026: Deadline for the first quarterly update (6 April – 30 June 2026).

  • 7 November 2026: Deadline for the second quarterly update (1 July – 30 September 2026).

  • 7 February 2027: Deadline for the third quarterly update (1 October – 31 December 2026).

  • 7 May 2027: Deadline for the fourth quarterly update (1 January – 31 March 2027).

  • 31 January 2028: Deadline for the Final Declaration for the 2026/27 tax year.

Quarterly Updates Explained

Under Making Tax Digital, you will need to submit a quarterly update to HMRC every three months. This update will include a cumulative summary of your income and expenses for the tax year to date. It is not a tax payment but a report of your financial activity.

What to Include in Your Quarterly Update

  • Total income for the year to date.

  • Total expenses for the year to date.

  • Any other relevant financial information required by HMRC.

You will use MTD-compatible software to prepare and submit these updates. The software will connect directly to HMRC’s systems, making the process as seamless as possible.

Records You Need to Keep

Under MTD, you must keep digital records of all your income and expenses. This means no more paper receipts or manual spreadsheets unless they are part of a digital system. Your records must include:

  • All income received.

  • ‍All business expenses.

  • VAT records (if you are VAT-registered).

  • Any other financial transactions related to your business.

Keeping digital records will not only help you comply with MTD but also make it easier to manage your finances and track your business performance.

Software Options

You will need to use MTD-compatible software to keep your digital records and submit your quarterly updates. Many popular accounting software providers, such as QuickBooks, Xero and FreeAgent, already offer MTD-compatible solutions.

Finniston and Company uses approved software to file MTD returns on behalf of our clients. If you are unsure which software is right for you, we can recommend options based on your business needs and help you get started.

How to Get Ready

Preparing for Making Tax Digital does not have to be complicated. Here are some steps you can take to get ready:

  • Review Your Current Process: Look at how you currently keep your financial records. If you are using paper-based systems or manual spreadsheets, now is the time to consider moving to digital software.

  • Choose MTD-Compatible Software: Select a software package that meets your needs and is compatible with MTD. Finniston and Company can advise on the best options for your business.

  • ‍Set Up Your Digital Records: Start keeping digital records of your income and expenses. This will make it easier to submit your quarterly updates when the time comes.

  • ‍Familiarise Yourself with the Deadlines: Make a note of the key dates for quarterly updates and the annual return. Setting reminders can help you stay on track.

  • ‍Seek Professional Advice: If you are unsure about any aspect of MTD, an accountant can provide clear, practical advice tailored to your situation.

Frequently Asked Questions

Does Making Tax Digital apply to sole traders?

Yes, if your combined income is above the threshold (£50,000 in 2026/27, reducing to £30,000 and then £20,000 in later years), you will need to comply with MTD for Income Tax.

When does Making Tax Digital start for sole traders?

Making Tax Digital for Income Tax started in April 2026. The first quarterly update for sole traders is due by 7 August 2026.

Next Steps

Making Tax Digital represents a significant change in how sole traders report their income to HMRC. While it may seem daunting at first, the transition can be smooth with the right preparation and support.

Finniston and Company is here to help you navigate these changes. Whether you need advice on software, assistance with digital record-keeping or support with your quarterly updates, we can provide the guidance you need.

Contact Finniston and Company today for clear, practical advice. Your first meeting is free and with no obligation.

Rob Holmes
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