Making Tax Digital for Sole Traders: 2026, 2027 and 2028 Rules Explained
What sole traders need to know about MTD for Income Tax, qualifying income thresholds, digital records, quarterly updates, and accountant support.
Last reviewed: 3 September 2026 · Editorial policy
Who is affected first
MTD for Income Tax is being phased in by qualifying income. The current GOV.UK timetable starts with qualifying income over £50,000 from 6 April 2026, then over £30,000 from 6 April 2027, and over £20,000 from 6 April 2028.
What changes for sole traders
Instead of leaving records until the annual Self Assessment return, affected sole traders need digital records and compatible software. Quarterly updates are submitted during the year, followed by finalisation after the tax year ends.
How an accountant can help
A good MTD accountant can choose software, set up bank feeds, map bookkeeping categories, review quarterly numbers, and keep the final Self Assessment position aligned with the digital records.
Work out qualifying income correctly
Use gross turnover from self-employment plus gross property income before expenses. HMRC looks at the relevant earlier Self Assessment return to establish the start date. Employment salary, pension income, dividends and savings interest do not form part of this particular threshold test.
If you have two sole trades and rental income, the threshold is not tested against each in isolation. Add the qualifying sources, but plan separate digital records and updates for each business as required by the MTD process.
Map each transaction into the digital system
Choose compatible software or a compatible combination before the start date. Define sales channels, bank feeds, cash transactions, owner transfers and expense categories. Decide how invoices, receipts and mileage evidence will attach to the entry and who reviews uncategorised transactions.
A spreadsheet can be part of a compliant setup when connected through appropriate compatible software. The objective is a maintained digital record and supported transfer of data, not copying a quarterly total from a paper notebook at the deadline.
Understand the quarterly rhythm
Quarterly updates send summary totals for the period. They are not four fully adjusted tax returns and do not normally settle tax each quarter. Use them as checkpoints: reconcile bank accounts, correct duplicate feeds, review debtors and creditors where relevant, and explain unusual movements.
After the tax year, finalise the business figures, make tax and accounting adjustments, add other income and gains, claim reliefs and submit the tax return through compatible software by the applicable deadline.
First-year implementation checklist
If digital exclusion may apply, read HMRC’s exemption criteria and apply through the official route. Do not wait until the first update is late to establish whether HMRC agrees.
| Before start | During each quarter | After year end |
|---|---|---|
| Confirm HMRC start date and exemptions | Reconcile bank and sales platforms | Complete accounting and tax adjustments |
| Authorise compatible software | Resolve uncategorised and mixed-use costs | Add other income, gains and reliefs |
| Create separate business records | Send update and retain receipt | Submit return and pay by the deadline |
Frequently asked questions
Is the MTD threshold based on profit?+
No. HMRC defines qualifying income using gross self-employment turnover and property income before expenses.
Do quarterly updates mean quarterly tax payments?+
No. They are in-year summaries. The normal year-end return and tax-payment process still applies unless separate payment rules change.
Can I keep using a spreadsheet?+
Potentially, if it forms part of a compatible digital system and the required data is transferred through compliant links. Check the exact software arrangement.