Making Tax Digital for Sole Traders: 2026 Rules, Thresholds and Dates

Yes, if your qualifying income is above the threshold for your start date. Making Tax Digital for Income Tax (MTD for ITSA) began on 6 April 2026 for sole traders and landlords with qualifying income over £50,000. The threshold is due to drop to £30,000 in April 2027 and, under current plans, to £20,000 in April 2028. If you're in scope, you keep digital records, send four quarterly updates a year and make a final declaration, all through compatible software.

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is HMRC's move from one yearly Self Assessment return to digital record keeping and regular updates. Instead of sending everything once a year, you send a short update every three months, then a final declaration at the end of the tax year. All of this goes through software that's compatible with HMRC's systems.

It follows Making Tax Digital for VAT, which began in 2019. If you're new to the basics of Self Assessment, our guide to Self Assessment basics is a good starting point. For the official rules, see GOV.UK's guidance on MTD for Income Tax.

Who Has to Join, and When?

It depends on your qualifying income. This is your total income from self-employment and property before expenses, in a given tax year. Landlords are included through their property income.

The 2028 threshold is currently a plan, not a confirmed rule, so check GOV.UK for the latest position. People below the thresholds aren't required to join, though they can choose to do so voluntarily.

What Does MTD Change for Sole Traders?

Three things change in practice:

• Digital records. Paper books, or a spreadsheet on its own, usually won't be enough. Your records need to be held in software, or linked to it through bridging software.
• Quarterly updates. You send an update every three months, plus a final declaration each tax year. The final declaration is due by 31 January after the tax year ends, and tax must be paid by then.
• Compatible software. HMRC doesn't provide its own tool, so you'll need commercial software, such as this option from Xero. Free products should be available for simple affairs. The wider changes to company reporting are covered in our guide to what changes to annual accounts filing.

For more questions answered, see our guide to your Making Tax Digital questions.

How Much Will MTD Cost Me?

HMRC's own estimates put the average one-off cost at about £320 per business, and the average ongoing cost at about £110 a year. For those two groups, the estimates are:

These are estimates from HMRC's published impact assessment. Your costs depend on your software, whether you use an accountant, and how digital your records already are.

What Happens If I Miss a Deadline?

MTD for Income Tax uses a points-based penalty system. You get a penalty point for each missed quarterly update or late return. At four points, you receive a £200 fine, and further penalties can follow for continued late submissions.

There is a soft landing in the first year. For 2026 to 2027, HMRC won't apply penalty points for late quarterly updates. That doesn't cover the final return, which is still due by 31 January, and late payment charges work separately. See HMRC's guidance on understanding MTD for Income Tax for the detail.

Can I Be Exempt From MTD?

Some people can apply for an exemption, for example if they can't use digital tools for reasons such as disability, age or location. The rules broadly follow those for MTD for VAT. Check GOV.UK for the current criteria and how to apply.

Why Are Some Sole Traders Looking at a Limited Company?

MTD for Income Tax is based on your personal income from self-employment and property. A limited company's profits sit within the company and are reported through Corporation Tax, so they're handled differently. Some sole traders look at a company alongside other reasons, such as limited liability.

A company isn't less admin, though. It brings annual accounts, a confirmation statement, Corporation Tax returns, and payroll or dividends if you pay yourself. Whether it suits you depends on your income, plans and risk, so it's worth speaking to an accountant first. These guides explain more:

• Sole trader vs limited company
• How to switch from sole trader to limited company
• Paying yourself as a director

If you decide to set up a company, you can compare our formation packages.

What Should I Do Next?

Check your qualifying income against the thresholds above, choose compatible software, and speak to an accountant if you're unsure whether you're in scope. HMRC's guidance on GOV.UK is the best place to confirm the latest rules.

FAQs

Do I have to join Making Tax Digital as a sole trader?

Yes, if your qualifying income is over the threshold for your start date: £50,000 from April 2026, £30,000 from April 2027, and £20,000 from April 2028 under current plans.

Do I need to join if I earn under £20,000?

Not under the current timeline. You can still join voluntarily if you'd like to.

What software do I need?

Software that's compatible with MTD for Income Tax. Free options should be available for simple affairs, alongside paid products.

Does MTD replace my Self Assessment return?

It replaces the single annual return with quarterly updates and a final declaration, still as part of Self Assessment.

Can I be exempt from MTD?

Possibly. Exemptions broadly mirror those for MTD for VAT, including digital exclusion. Check GOV.UK for how to apply.

Does having a limited company avoid MTD for Income Tax?

MTD for Income Tax is based on your personal trading and property income. A company's profits are reported through Corporation Tax, though the company has its own reporting duties.

What happens if I don't comply?

You collect penalty points for missed deadlines, with a £200 fine at four points. For 2026 to 2027, there's a soft landing with no points for late quarterly updates.

This article is for general information only and does not constitute legal, tax or financial advice. Thresholds, dates and penalties can change, so please check GOV.UK or speak to a qualified accountant before making decisions.