Making Tax Digital for Sole Traders: What You Need to Know Before April 2026
If you are a sole trader or a landlord in the UK, you have likely heard whispers about Making Tax Digital (MTD). The way we report income to HM Revenue & Customs (HMRC) is undergoing a major transformation. Specifically, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is fast approaching. While change can feel daunting, understanding the requirements now will ensure a smooth transition for your business.
Who is Affected and When Does It Start?
The rollout of MTD for ITSA is being introduced in phases, depending on your total qualifying income from self-employment and property. It is important to note that this threshold applies to your total gross income (turnover), not your profit.
The key dates and thresholds to remember are:
•From 6 April 2026: You must use MTD for ITSA if your total qualifying income is over £50,000 (based on the 2024 to 2025 tax year) .
•From 6 April 2027: The requirement extends to those with a qualifying income over £30,000 (based on the 2025 to 2026 tax year) .
The government has also indicated plans to eventually lower the threshold to £20,000 by the 2026 to 2027 tax year, though the exact timeline for this phase is yet to be fully confirmed . If your income is below these thresholds, or if you are deemed digitally excluded, you may be exempt and can continue using the traditional Self Assessment method.
What Do You Need to Do?
The shift to MTD means moving away from the annual paper trail and adopting a more continuous, digital approach to your record-keeping. There are three main requirements you will need to fulfil:
1. Keep Digital Records: You must use compatible commercial software to record all your business income and expenses digitally. This replaces traditional manual ledgers or basic spreadsheets (unless used alongside specific bridging software) .
2. Send Quarterly Updates: Instead of one annual tax return, your software will automatically summarise your income and expenses every three months and send this data directly to HMRC. For the standard tax year, these updates are due by 7 August, 7 November, 7 February, and 7 May . These updates provide HMRC with a regular snapshot of your business finances, though you do not need to make tax or accounting adjustments at this stage.
3. Submit a Final Declaration: By 31 January the following year, you will submit a final declaration. This is where you add any other income sources (such as savings or dividends), claim reliefs, make final accounting adjustments, and finalise your tax position for the year .
Choosing the Right Software
To comply with MTD for ITSA, you must use software that is recognised by HMRC. You cannot simply log into an HMRC portal and type in your figures. The software must be capable of creating digital records, connecting to HMRC systems, and sending your quarterly updates and final declarations .
Many popular cloud accounting platforms are already MTD-compatible. If you currently use spreadsheets, you will need to either transition to a dedicated accounting package or use “bridging software” that can securely link your spreadsheets to HMRC’s systems .
We Are Here to Help
The transition to Making Tax Digital is a significant shift in how sole traders manage their finances. You don’t have to navigate these changes alone. At Lacey Accounting, we are ready to help you assess whether you meet the thresholds, choose the right compatible software, and seamlessly transition your record-keeping processes.
If you have any questions about how MTD for ITSA will impact your business, please get in touch with the friendly team at Lacey Accounting today. We are here to make your transition as simple and stress-free as possible.
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