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Making Tax Digital for Income Tax: Sole Trader Guide

Published 18 Jul 2026 · Updated 18 Jul 2026

Making Tax Digital for Income Tax (MTD for Income Tax) changes how some sole traders and landlords keep their records and report to HMRC. It does not replace Self Assessment — you still complete one tax return a year — but from 6 April 2026 onwards, affected people keep digital records, send HMRC short summaries each quarter, and submit that annual return through MTD-compatible software. Whether it applies to you depends on your qualifying income: you are brought in once your gross income from self-employment and property is more than a set threshold, phased in over three years. If your qualifying income is £20,000 or less, nothing changes yet and you carry on with Self Assessment as normal.

This page is the deep-dive on MTD for Income Tax. For the wider picture of what a sole trader files and when, start with sole trader accounts.

Does Making Tax Digital for Income Tax apply to me?

It applies to individuals who are sole traders or landlords, are registered for Self Assessment, receive self-employment income, property income, or both, and whose qualifying income is more than the relevant threshold for the tax year. It is being phased in by income:

Two things to note about that table. First, HMRC's wording is "more than", so exactly £50,000 is not caught from April 2026; you need to be over the figure. Second, any extension to people earning £20,000 or less has been announced only as "kept under review" — there is no confirmed date, so if your qualifying income is £20,000 or less you keep filing the normal way for now.

You do not start using MTD for Income Tax until after you have submitted your first Self Assessment tax return. For a brand-new trade or property source, the first return that includes it comes before the MTD start point for that source.

What counts as qualifying income?

Qualifying income is your gross income before expenses from self-employment and property, added together. This is turnover, not profit — a business with modest profit but takings over the threshold is still caught.

Count towards the threshold:

• sole-trader turnover before expenses;
• property income before expenses;
• your share of jointly owned property income;
• income across multiple trades and property businesses.

Do not count employment income, dividends, pension income, savings income, or your share of partnership profit as an individual partner. A partner's profit share does not need MTD digital records or quarterly updates, though it still goes on the annual tax return.

Some less common situations — income linked to a partnership, a trust, land transactions or similar — can be caught even where an ordinary partnership share is not. If your income comes through anything more involved than a straightforward trade or rental, it is worth checking your position before you conclude either way. Speak to an accountant if you want that confirmed.

What actually changes under MTD?

Three practical changes, and one that catches people out by not changing at all.

Digital records. You keep records of your self-employment and property income and expenses in a digital form, rather than on paper or in your head.

Quarterly updates. You send HMRC a summary of your income and expenses four times a year, through your software. These updates are summaries, not tax returns — nothing is owed when you send one, and HMRC does not require full year-end accounting or tax adjustments before a quarterly update. You should still check your digital records and correct errors before sending. The final tax adjustments, reliefs and allowances are dealt with after the fourth update and before the annual tax return. Each update is a running, cumulative total from the start of the tax year, so a mistake in an early quarter can usually be put right in a later one.

There are two period patterns. Standard update periods run from 6 April and are the default. If your accounting period runs from 1 April to 31 March, you should consider selecting calendar update periods in your software for each income source before sending its first update. That changes the cumulative period ends to 30 June, 30 September, 31 December and 31 March, but the submission deadlines stay the same. Once you have sent the first update, you cannot change that period pattern for the tax year.

The standard periods and deadlines are:

One annual tax return, through software. After the fourth quarter you still complete and submit a single tax return for the year, adding anything the quarterly updates did not cover — other income, reliefs and allowances. Under MTD you do this through your MTD-compatible software, and the deadline stays 31 January after the end of the tax year.

MTD-compatible software. This is mandatory. HMRC does not provide the software and does not recommend a particular product. Spreadsheets are not banned outright, but a spreadsheet only works if it links to compatible bridging software that can send the updates and submit the return.

What does not change?

Some of the loudest worries about MTD are about things that stay exactly as they are:

• It is not four tax returns a year. The quarterly updates are summaries. There is still one annual tax return.
• It is not quarterly tax payments. MTD does not change the way you pay tax or the dates payments are due. The usual Self Assessment payment dates carry on — see Self Assessment for sole traders for how payments on account work.
• The annual return still exists. Affected taxpayers complete and submit it through software by 31 January.
• The tax rules are the same. MTD changes the reporting route, not what is taxable or how much you owe.

Who is not affected for now?

• Anyone whose qualifying income is £20,000 or less — normal Self Assessment continues.
• Partnerships, which do not currently use MTD for Income Tax (an individual partner can still be caught for their own sole-trader or property income).
• People who fall within a specific automatic exclusion recorded by HMRC — for example, having no National Insurance number before the start of the tax year, or filing in certain trustee, personal-representative or other specialist capacities. This page is for individual sole traders and landlords, so anyone filing in another capacity should check the detailed HMRC rules rather than relying on this summary. A digital-exclusion exemption (on grounds such as age, disability, religion or no internet access) has to be applied for; disliking software or the extra cost is not enough on its own.

What happens if I miss a deadline?

For people in MTD, late submission is dealt with under a points-based system. You collect a penalty point for each missed quarterly update or tax return deadline, and once you reach the threshold — 4 points for someone sending quarterly updates — you get a £200 penalty, with a further £200 for each later miss while you are at the threshold.

There is a soft landing at the start: for the 2026/27 tax year, HMRC will not apply penalty points for late quarterly updates. The updates still have to be sent, and late tax returns and late payment can still trigger penalties.

Late-payment penalties are separate from the points system. They apply to late tax bills rather than to payments on account, and interest can still run on tax paid late. This page keeps penalties at a high level — if you are worried about a specific deadline, speak to an accountant.

Do I need to wait for HMRC to tell me?

HMRC may write to people it identifies as in scope, but the letter is not the legal trigger. If you do not receive one, it is still your responsibility to check your qualifying income and sign up if you need to. Knowing your gross income figure each year is the simplest way to see it coming.

Frequently asked questions

Does MTD for Income Tax replace Self Assessment? No. It changes how affected sole traders and landlords keep records and submit their return, but there is still one annual tax return, due 31 January. See Self Assessment for sole traders.

Do I have to send four tax returns a year? No. The four quarterly updates are summaries of income and expenses, not tax returns, and nothing is owed when you send them. The tax return is once a year.

Does MTD mean I pay tax every quarter? No. MTD does not change when you pay. Your payment dates stay the same as they are now.

Is the threshold based on my profit? No. It is based on gross income before expenses from self-employment and property combined — your turnover, not what is left after costs.

Can I still use a spreadsheet? Sometimes. Spreadsheets are not banned, but one only works if it connects to compatible bridging software that can send your quarterly updates and submit your return.

I run a limited company, CIC or charity — does this apply to me? No. MTD for Income Tax is for individuals reporting through Self Assessment. A company reports through a Company Tax Return, and company-owned property sits outside MTD for Income Tax. If that is you, start with other organisation types.

Want someone to handle the digital records, the quarterly updates and the return for you? Speak to an accountant →