Making Tax Digital for Income Tax — What Sole Traders Need to Know
Making Tax Digital for income tax (MTD for IT) replaces the annual self assessment tax return with quarterly digital submissions for sole traders above certain income thresholds. If you are self-employed, here is what is changing and when it affects you.
When Does MTD Apply to Sole Traders?
The rollout is phased by income level:
| From | Applies if annual turnover exceeds |
|---|---|
| 6 April 2026 | £50,000 |
| 6 April 2027 | £30,000 |
| 6 April 2028 | £20,000 |
Whether you are in scope for 2026/27 is determined by the turnover figure on your 2024/25 self assessment return — the one due for filing by 31 January 2026. If that shows turnover above £50,000, MTD applies to you from 6 April 2026.
What Replaces the Self Assessment Tax Return?
Under MTD, the annual return is replaced by two things. First, quarterly digital updates — you submit your business income and expenses to HMRC every three months using compatible software. Second, a final declaration at the end of the tax year — submitted by 31 January — which confirms your position, includes any personal income, and claims any additional reliefs.
You no longer file a self assessment return. The deadlines for paying your tax do not change.
What Are the Quarterly Deadlines?
| Quarter | Period | Submission deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 7 August |
| Q2 | 6 April – 5 October | 7 November |
| Q3 | 6 April – 5 January | 7 February |
| Q4 | 6 April – 5 April | 7 May |
You can elect to use calendar quarters (ending 30 June, 30 September, 31 December, 31 March) — the submission deadlines stay the same. The election must be made before your first quarterly submission.
What Records Must You Keep Digitally?
For each transaction you must record the amount, the date, and the category. For sole traders the main income and expense categories include turnover, cost of goods, wages and staff costs, travel, rent and utilities, repairs, professional fees, advertising, and bank charges.
Records must be kept in HMRC-recognised software. HMRC does not provide its own software — you will need to choose from the list of compatible providers on GOV.UK.
Is There a Soft Landing Period?
Yes. For the first year of mandatory MTD (2026/27), HMRC will not apply late filing penalty points for missed quarterly updates. Penalty points for quarterly returns begin from 6 April 2027. The soft landing applies only to quarterly submissions — late payment penalties still apply from day one.
Frequently Asked Questions
Q: I am a sole trader with turnover just below £50,000 — do I need to do anything now? A: Not immediately, but you should prepare. If your 2025/26 return shows turnover above £30,000, you join from April 2027. Start reviewing compatible software now so you are not scrambling close to the deadline.
Q: Do I still need an accountant under MTD? A: Yes — possibly more than before. Under MTD you can have a main agent who handles your year-end final declaration and a supporting agent who submits quarterly updates. An accountant remains essential for tax planning, year-end adjustments, and ensuring the quarterly figures are accurate.
Q: What if my turnover drops below the threshold after I join MTD? A: Once you are registered for MTD you remain in it even if income falls below the threshold — unless your qualifying income has been below the threshold for each of the previous three years, at which point you can apply to leave.
Need help preparing for MTD? Contact Liberate Accountants for a free consultation, or learn more about our self assessment service.
Need help with this?
Our expert team can handle this for you. Get in touch for a free consultation.