Making Tax Digital for Income Tax – What Sole Traders Need to Know

Making Tax Digital (MTD) for Income Tax is changing the way many sole traders report their business income and expenses to HMRC.

Instead of keeping records throughout the year and dealing with everything only at the end of the tax year, businesses covered by MTD will need to use MTD-compatible software, maintain digital records and send quarterly updates to HMRC. A tax return will still need to be completed after the end of the tax year.

When does MTD become compulsory?

MTD for Income Tax is being introduced gradually:

Qualifying income MTD becomes mandatory

Over £50,000 6 April 2026
Over £30,000 6 April 2027
Over £20,000 6 April 2028

Importantly, the threshold relates to qualifying gross income before expenses, not your taxable profit. It generally combines qualifying income from self-employment and property

If you are already a Sole Trader:
HMRC uses information from your previous Self Assessment tax return to determine when you need to enter MTD.

For example:

2024/25 qualifying income over £50,000 → MTD from 6 April 2026

2025/26 qualifying income over £30,000 → MTD from 6 April 2027

2026/27 qualifying income over £20,000 → MTD from 6 April 2028

So, for example, a sole trader with £35,000 of qualifying income in 2025/26 would normally fall into MTD from 6 April 2027.

What if you are starting a new business?

This is particularly important for new sole traders.

You do not automatically have to start MTD on the first day you become self-employed.

HMRC states that you do not need to start using MTD for Income Tax until after you have submitted your first Self Assessment tax return. That return provides HMRC with the information needed to determine whether your qualifying income exceeds the relevant threshold.

So if you're starting a new sole trader business, don't assume that crossing £20,000 or £30,000 during your first few months means you must immediately start submitting MTD quarterly updates.

What will you actually have to do?

Once MTD applies to you, you or your accountant will generally need to:

keep digital records of business income and expenses using compatible software;
send quarterly updates to HMRC;
keep the records digitally throughout the year;
complete your tax return through compatible software;
pay any Income Tax due by the normal deadline.

Does MTD mean four tax returns every year?

No. The quarterly updates are not four full Self Assessment tax returns. They are summaries of the digital records of income and expenses maintained during the year.

Official HMRC guidance

For the latest rules, thresholds and information about when you need to start:

Check when you need to use Making Tax Digital for Income Tax – GOV.UK

You can also use HMRC's complete step-by-step guide:

Making Tax Digital for Income Tax – step-by-step guide

Please note: This information is for general guidance only and does not constitute tax advice. Individual circumstances may vary.