Making Tax Digital for Income Tax: What Sole Traders Need to Know in 2026

Making Tax Digital for Income Tax (often shortened to MTD for Income Tax, or MTD ITSA) changes how self-employment and property income is recorded and reported. Instead of gathering everything up once a year, you keep digital records as you go and send HMRC a short update every quarter using compatible software. You then finalise the tax year through an annual process, much as you do with a Self Assessment return today.

It is not a new tax, and it does not change how much tax you owe. It changes the plumbing: digital records, quarterly updates, and software instead of a once-a-year paper shoebox.

It applies to individuals with income from self-employment, property, or both, where their qualifying income is over the threshold for the relevant phase. Being brought in depends on the size of that income, not on whether you use an accountant, whether you trade full time, or whether you are VAT registered.

Partnerships, companies and other income sources such as employment or dividends are treated separately — this guide is about sole traders and landlords.

Qualifying income is the relevant gross income before expenses from self-employment and property, subject to HMRC’s detailed rules. If you have both, the two gross figures are added together. It is measured for a specific tax year, and that is the figure HMRC compares against the threshold.

You can check your own figures with the Do I Need Making Tax Digital? calculator.

This is the single most common misunderstanding. People look at the profit on their tax return, see a figure below the threshold, and assume they are outside the rules.

Take a delivery driver with £58,000 of turnover and £22,000 of vehicle, fuel and phone costs. Their taxable profit is £36,000 — but their qualifying income is £58,000, which is over the first threshold. A landlord with £24,000 of rent and a large mortgage is in the same position: qualifying income is measured on the rent received, not on what is left afterwards.

If you want your profit figure for tax purposes, that is a different calculation — the Sole Trader Profit Calculator handles it, and the Self-Employed Tax Calculator estimates the tax on it.

The rules arrive in three phases:

• Over £50,000 of qualifying income for 2024/25 — you use Making Tax Digital for Income Tax from 6 April 2026.
• Over £30,000 of qualifying income for 2025/26 — you use Making Tax Digital for Income Tax from 6 April 2027.
• Over £20,000 of qualifying income for 2026/27 — you use Making Tax Digital for Income Tax from 6 April 2028.

Each threshold is worded as over the amount, so qualifying income of exactly £30,000 in 2025/26 does not bring you into that phase. Note also that the year being measured is always earlier than the year you start: HMRC looks back at a completed year to decide who is in.

Under Making Tax Digital you record your business income and expenses digitally rather than only writing them up at year end. In practice that means capturing each transaction reasonably promptly, with the date, amount and category, in software or in a spreadsheet connected to software.

For many sole traders this is the biggest practical change — and often the most useful one. Keeping records as you go tends to produce a more accurate profit figure and makes budgeting for tax far easier.

Quarterly updates have to be submitted through software that works with Making Tax Digital for Income Tax. That can be a full bookkeeping package, a simpler app, or bridging software that submits from a spreadsheet. HMRC publishes a list of compatible products, including some free and low-cost options.

MoneyCalcs UK does not sell, resell or recommend any particular software product. Check HMRC’s list and pick something that fits how you actually work.

A quarterly update is a summary of your income and expenses for the quarter, sent from your software. It is not a mini tax return, it does not have to be perfect at the point of submission, and it does not trigger a tax payment.

The standard quarters run from 6 April, with updates due one month and a few days after each quarter ends. Because the exact dates depend on your quarterly period choice and can be updated by HMRC, check the current deadlines in HMRC’s guidance or in your software rather than relying on a date you read once.

Quarterly updates do not replace the yearly job. At the end of the tax year you still finalise your figures, add anything else that belongs on your return, and confirm your tax position. Payment dates are unchanged, which means the January and July pattern — including payments on account — carries on.

Some people are exempt, and others can apply for an exemption — for example where it is not reasonably practicable for them to use digital tools because of age, disability, location or religious grounds. There are also categories of income and taxpayer that sit outside these rules altogether.

Exemptions are decided by HMRC on the facts, so if you think one applies to you, read the official guidance and follow the process there rather than simply not signing up.

• “My profit is under the threshold, so I’m out.” Qualifying income is gross income, not profit.
• “I’ll pay tax quarterly.” Quarterly updates are reports, not payments.
• “It only affects VAT-registered businesses.” MTD for VAT is separate; the income tax rules apply regardless of VAT registration.
• “Rental income doesn’t count.” Property income counts, and is added to self-employment income.
• “My accountant handles it, so nothing changes for me.” Even with an accountant, the underlying records need to be digital and kept up during the year.

1. Add up your gross self-employment income and gross property income for the tax year in question — before expenses.
2. Compare that total with the threshold for that year using the Making Tax Digital calculator.
3. Check the position on GOV.UK, and watch for letters from HMRC about signing up.
4. Start keeping digital records now if you are likely to be in scope — it is far easier than a rush in April.
5. If your circumstances are unusual, or you want certainty, speak to a qualified accountant or tax adviser.

To be nudged when the relevant deadlines approach, you can also join the free tax deadline reminders list.