Making Tax Digital: Sole Trader Guide

Introduction

I was catching up with my mate Shane last week. Shane’s a builder in London, been in the trade for years, and he knows just about every sole trader on every site he’s ever worked on. Plumbers, sparks, chippies, plasterers, the lot.

He mentioned to me that every second person he talks to is talking about these Making Tax Digital changes. Because he knows I co-founded No Worries Accounting, he wanted the tea.

If you’re a sole trader, or you know someone who is, you’ve probably heard the rumblings. Something about quarterly updates. Something about new software. Something about HM Revenue and Customs changing the income tax rules again.

The good news? It’s not worse than you think, but still, it will be a shift for a lot of self employed people. For sure it’s happening, and it is coming soon, April 2026, so it’s worth understanding what’s actually involved. Let’s crack it open.

So What Actually Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax, or MTD for short, is the next phase of HMRC’s push to move the tax system online. If you’re VAT registered, you might already be familiar with Making Tax Digital for VAT, which has been running since 2019. This is the same idea, but applied to income tax and self assessment tax returns.

In plain English, MTD for Income Tax means that instead of doing one big self assessment tax return at the end of the tax year, you’ll be reporting in a more spread-out way. You’ll need to:

1. Keep your income and expense records digitally, using Making Tax Digital software
2. Send HMRC quarterly updates – a short summary of those digital records four times a year
3. File your annual tax return as normal at the end of the tax year (but most of the data will already be in your software)

That’s it. The quarterly updates aren’t extra tax returns. They’re not complicated calculations. They’re just a simple snapshot of what you’ve earned and spent in the previous three months, pulled straight from your digital records.

Think of it less like doing your taxes four times a year, and more like keeping a running tally that HM Revenue and Customs can see. The Making Tax Digital software does the heavy lifting. You keep your digital records up to date, and when it’s time to send a quarterly update, the software pulls together a summary and sends it off.

Which Sole Traders Does It Affect, and When?

MTD for Income Tax is being rolled out in phases, based on your gross income from self employment and property:

1. From 6 April 2026 – sole traders and landlords earning over £50,000
2. From April 2027 – self employed individuals and landlords earning over £30,000
3. From April 2028 – self employed people and landlords earning over £20,000

Important: that’s gross income, meaning the total money you bring in before expenses or tax. Not your business profits. So if you’re invoicing £55,000 a year but only taking home £35,000 after costs, you’re still in the first wave.

The threshold is based on your combined income from self employment and property income. So if you earn say £35,000 as a sole trader and £25,000 from a rental property (remember, we’re talking income, NOT profits), that’s £55,000 and you’re in scope for Making Tax Digital from April 2026.

Partnerships aren’t included in Making Tax Digital for Income Tax yet – HMRC has said they’ll set out the timeline for that later. And if you operate through a Limited Company, Making Tax Digital for Income Tax doesn’t apply to you (though it might apply to any sole trade or property income you have personally).

It’s also worth noting that if your self-employment turnover or UK property income is below the VAT registration threshold (currently £90,000), you can usually use ‘three-line accounts’ under Making Tax Digital. In practice, that means your quarterly updates can be simple totals, total income and total expenses, rather than splitting everything into detailed categories, which for a lot of sole traders makes MTD a fair bit less admin than it first sounds.

“It’s Going to Be a Nightmare for My Tax Bill” – Is It, Though?

This is the bit that gets some people wound up about. And honestly, it’s understandable. Nobody wants more admin. Nobody wants to feel like they’re paying tax every five minutes or that HMRC is looking over their shoulder.

But here’s the thing: Making Tax Digital for Income Tax doesn’t change your tax bill. You’re not paying more tax under these income tax rules – you’re just reporting it differently. The amount you owe stays the same. If anything, keeping proper digital records throughout the tax year might actually help you plan better, spot expenses you’d otherwise miss, and avoid surprises when your self assessment tax return is due.

For a lot of self employed individuals, the shift to Making Tax Digital could even be more tax efficient in practice. When you’re tracking income and expenses in real time with MTD software, you get a much clearer picture of your business profits throughout the tax year. That means fewer missed deductions, fewer nasty surprises at year end, and better decisions about how to manage your money.

HMRC also knows this is a big change, and the UK government is giving self employed individuals a soft landing. For the first 12 months of Making Tax Digital for Income Tax, you won’t receive any penalty points for late quarterly updates. Even after that grace period, penalties only kick in once you’ve hit four late submissions, and the fine at that point is £200. So the occasional slip-up isn’t going to cost you.

The sole traders who’ll find this hardest are the ones still running everything on paper, or through an Excel spreadsheet. If that’s you, this is probably the nudge you needed to get things tidied up – and you’ve still got time to do it before April.

Do I Qualify for an Exemption from Making Tax Digital?

Not everyone has to sign up for Making Tax Digital for Income Tax. There are a few situations where you might qualify for an exemption.

If you genuinely cannot use digital tools, for example due to a disability, age, or location, you can apply to HMRC for an exemption from Making Tax Digital. If granted, you’ll continue filing your self assessment tax return the traditional way.

You’re also outside the scope of Making Tax Digital for Income Tax if your gross income from self employment and property is below the current threshold (and we mentioned those thresholder earlier).

If you run a limited company and don’t have any self employment or property income outside of that, Making Tax Digital for Income Tax doesn’t apply to you. Your limited company accounts, corporation tax returns, and Companies House filings are handled under different rules and other taxes entirely.

And if you’re already using Making Tax Digital for VAT, that doesn’t automatically mean you’re signed up for Making Tax Digital for Income Tax. They’re separate obligations. VAT registered businesses that are also self employed will need to register for both.

What Self Employed Sole Traders Actually Need to Do

If you think MTD for Income Tax applies to you from April 2026, here’s what you need to sort out. These are the key sole trader responsibilities under the new income tax rules:

1. Check whether you’re in scope

Look at your 2024/25 tax return. If your combined gross income from self employment and property income was over £50,000, you’re eligible and in the first wave. HMRC should be writing to you to confirm, but it’s worth checking for yourself rather than waiting. You can also check your eligibility through your HMRC online account.

2. Get Making Tax Digital Software

You’ll need Making Tax Digital software that’s been recognised by HM Revenue and Customs for Making Tax Digital for Income Tax. There are free options and paid options – what suits you will depend on how complex your sole trader business is.

Some self employed people use what’s called bridging software. Bridging software connects your existing spreadsheets or records to HMRC’s systems, so you can submit your quarterly updates without switching to a completely new platform. It’s a useful option if you’ve already got a system that works for your own business and just need it to be Making Tax Digital compatible.

That said, if you’re starting from scratch, purpose-built MTD software is usually the better plan. It keeps your digital records, generates your quarterly updates, and handles your self assessment tax return all in one place.

This is something we’ve been working on at No Worries. Our accounting software, Joy Pilot, will be fully compliant Making Tax Digital software for April 2026, and we’re putting together accounting and software packages specifically designed for sole traders who are going to be impacted by these changes. The idea is to make the whole thing as painless as possible – the MTD software, the support, and the filing, all in one place.

I’m not going to lie, the packages we’ll have on offer for sole traders will be amazing.

3. Sign up and register with HMRC

HMRC won’t sign you up automatically for Making Tax Digital for Income Tax. You need to register through their online service, or your accountant can register on your behalf. Don’t leave this until the last minute – getting it sorted early means one less thing to worry about. HMRC has a plan to contact eligible sole traders and landlords, but don’t wait around for the letter.

4. Start keeping digital records

If you’re not already doing this, now’s the time to start thinking about it. From April 2026 you want to make sure you’re fully digital. It doesn’t have to be complicated. Record your income and expenses as they happen, keep things categorised, and let the Making Tax Digital software do the rest. By the time your first quarterly update is due, you’ll already have the digital records sitting there ready to go.

Key Dates for Your Quarterly Updates

For sole traders and landlords joining Making Tax Digital for Income Tax from April 2026, here’s the timeline for the first tax year:

1. First quarterly update (6 April – 5 July 2026): due by 7 August 2026
2. Second quarterly update (6 July – 5 October 2026): due by 7 November 2026
3. Third quarterly update (6 October 2026 – 5 January 2027): due by 7 February 2027
4. Fourth quarterly update (6 January – 5 April 2027): due by 7 May 2027
5. Annual self assessment tax return for the 2026/27 tax year: due by 31 January 2028

Your 2025/26 tax return (the tax year before Making Tax Digital starts) is still filed the normal way, by 31 January 2027. MTD for Income Tax only kicks in for the 2026/27 tax year onwards across the UK.

You can also choose to align your quarters to calendar months if that’s easier for your sole trader business – the submission deadlines for your quarterly updates stay the same either way.

Choosing the Right MTD Software for Your Small Business

This is probably the single biggest source of anxiety for self employed people. “What MTD software do I need? How much is it going to cost? Is it going to be complicated?”

The honest answer is: it depends on your setup. If you’re a sole trader with straightforward income and expenses, for example a self employed plumber or electrician, you don’t need anything fancy. HM Revenue and Customs has a list of compatible software on their website, and some of it is free. For a small business with simple accounts, that might be all you need. The risk of getting it wrong is low if you pick something straightforward.

If you’re already using spreadsheets and want to keep them, bridging software can connect your existing records to HMRC’s MTD systems. Bridging software isn’t the most elegant solution, but for some self employed individuals in the UK it’s a practical way to meet the new income tax rules without overhauling everything.

Seriously though, I would not attempt the spreadsheet and bridging software option. Too much of a pain, and spreadsheets are on the out.

But if you want something that handles your bookkeeping, your MTD quarterly updates, and your year-end self assessment tax return all in one place – without you having to become an accounting expert – that’s exactly what we’re building with Joy Pilot. We work with sole traders and limited company contractors every day at No Worries Accounting, and we know what small business owners actually need: something simple, something reliable, and someone to call when things don’t make sense.

We’re putting together some sole trader packages that combine the Making Tax Digital software with proper accounting support, specifically for sole traders who are coming into MTD for Income Tax for the first time. Whether you’re one of the many VAT registered businesses already familiar with digital reporting or completely new to it, we’ll have something that fits. Keep an eye out – we’ll have more details soon.

Are There Any Benefits to Making Tax Digital?

It’s easy to see Making Tax Digital for Income Tax as just another government obligation. But there are genuine benefits, particularly for self employed individuals who haven’t had much structure around their accounts before.

For a lot of people these won’t feel like benefits at all, but once you have been doing this for a few years, you wonder how you ever lasted on the old system.

Keeping digital records throughout the tax year means you always know where your sole trader business stands. No more guessing what your tax bill might be in January. No more scrambling to find receipts. Your income, expenses, and profits are all there in your MTD software, updated in real time.

For a lot of small business owners, this kind of visibility is genuinely useful. You can plan ahead, set money aside for your tax bill and national insurance contributions, and make more tax efficient decisions about when to invest in your own business. The government’s stated aim is to reduce errors and help people pay the right amount of tax – and for plenty of sole trader business owners, that’s actually a good thing.

The benefits extend to your accounts more broadly too. If you’re ever audited, or if you need to report your income for a mortgage or loan, having clean digital records makes the whole process smoother. And because your Making Tax Digital software keeps a running record, your year-end tax return becomes less of an ordeal and more of a formality. The legislation is new, but the end result should be less admin, not more.

Making Tax Digital Is Coming – But You’ve Got This

Making Tax Digital for Income Tax is a change, and change is always a bit uncomfortable, but it’s not the disaster that the rumour mill makes it out to be.

The quarterly updates are simple. The penalties are gentle to start with. The Making Tax Digital software does most of the work. And if you get yourself sorted in the next couple of months, you’ll barely notice the transition when April rolls around.

The sole traders who’ll struggle are the ones who bury their heads and hope it goes away. It won’t. But it really doesn’t have to be stressful either – especially if you’ve got the right people in your corner.

At No Worries Accounting, this is exactly what we do. We help sole traders, self employed individuals, and limited company contractors get their tax and accounting sorted, properly, and without the stress. Whether you need help understanding how Making Tax Digital affects you, want someone to handle your quarterly updates and self assessment tax return, or you’re looking for a complete accounting package that includes MTD software, support, and year-round advice, we’ve got you covered.

Our Joy Pilot software is built for exactly this – Making Tax Digital compliance, simple bookkeeping, and proper accounting support, all in one place. We’re putting together sole trader packages that take the whole thing off your plate, so you can focus on running your own business instead of worrying about HMRC. Get in touch and we’ll have a chat about what you need. No pressure, no jargon, just straightforward advice from people who deal with this stuff every day.

And if you know a builder, a plumber, or a plasterer who’s been stressing about this – send them this article. Shane’s mates would appreciate it.