Making Tax Digital 2026: Mandatory for Sole Traders Over £50,000 from April 2026, Quarterly Submissions Replace Annual Return
What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to digitalise the UK tax system. The goal is to make tax administration more accurate and efficient by requiring businesses and individuals to keep digital records and submit tax information directly through HMRC-compatible software.
MTD for VAT launched in 2019 and is already mandatory for all VAT-registered businesses. Now HMRC is rolling out MTD for Income Tax Self Assessment (MTD ITSA), which directly affects self-employed tradespeople and landlords who currently file a Self Assessment tax return each year.
Who Is Affected and When?
MTD ITSA is being introduced in phases based on annual income thresholds:
- April 2026: Sole traders and landlords with total gross income over £50,000 per year
- April 2027: Those with income over £30,000 per year
- April 2028: Those with income over £20,000 per year
- Partnerships: Inclusion date still to be confirmed by HMRC
- Limited companies: Not affected — companies file Corporation Tax differently and are not in scope for MTD ITSA
Your income threshold is based on the gross income from self-employment and any property income combined — not profit after expenses.
What Changes Under MTD ITSA?
MTD ITSA replaces the single annual Self Assessment return with a year-round digital process. Here is what that looks like in practice:
- Quarterly submissions: Instead of one annual return, you submit a summary of your income and expenses to HMRC four times per year. These are not full tax calculations — they are updates to keep HMRC informed throughout the year.
- End of Period Statement (EOPS): At the end of the tax year you confirm the figures for each source of income are complete and correct. This is the annual finalisation step.
- Final Declaration: Replaces the traditional Self Assessment tax return. You confirm all your income for the year, claim any reliefs, and agree your tax bill. This is still due by 31 January.
- Digital record keeping: You must keep digital records of all business income and expenses. Spreadsheets alone are not sufficient — you either need MTD-compatible software or bridging software that connects your spreadsheet to HMRC.
Compatible Software Options
HMRC maintains a list of approved MTD-compatible software. Popular options for tradespeople include:
- QuickBooks Self-Employed — simple income and expense tracking with quarterly submission built in
- FreeAgent — popular with sole traders, strong invoicing and MTD filing
- Xero — more comprehensive, suits tradesmen with employees or complex accounts
- Sage — established accounting software with MTD support
- Coconut — designed for self-employed people, connects to your bank account
- 1Tap — receipt capture and record keeping app for tradesmen
- TaxScouts — combines software with accountant filing support
Most of these have mobile apps, which means you can log jobs and expenses on site. Costs typically range from £10 to £30 per month. If you currently use spreadsheets and want to continue doing so, bridging software (such as Absolute or Coconut) can connect your spreadsheet to HMRC's systems at lower cost.
What Records You Need to Keep
Under MTD you must keep digital records of the following, updated throughout the year:
- All sales income, recorded invoice by invoice (not just totals)
- All business purchases with dates and amounts
- Expenses broken down by category (materials, fuel, tools, subcontractors, etc.)
- Mileage records for business travel
- Capital assets — tools, vans, and equipment used for the business
Quarterly Reporting Calendar
The quarterly submission deadlines follow the UK tax year (6 April to 5 April):
| Quarter | Period | Submission Deadline |
|---|---|---|
| Q1 | 6 April – 5 July | 7 August |
| Q2 | 6 July – 5 October | 7 November |
| Q3 | 6 October – 5 January | 7 February |
| Q4 | 6 January – 5 April | 7 May |
| EOPS | Full tax year | 31 January |
| Final Declaration | Full tax year | 31 January |
Penalties for Non-Compliance
HMRC is using a points-based penalty system for MTD ITSA late submissions:
- Each late quarterly submission earns 1 penalty point
- When you reach 4 points, a £200 fine is issued
- Points reset after 24 months of full compliance
This system is designed to be lenient for occasional mistakes but escalates for repeated late filing. Late payment of tax will continue to carry separate interest and surcharge penalties.
Action Plan: What to Do Now
- Check your income threshold. Add up your gross self-employment income (and any rental income) to confirm whether you fall within the April 2026 or later cohort.
- Choose your software. Research the options above and pick one that fits how you work. Many offer free trials.
- Start using it now. Do not wait until your mandatory start date. Building the habit of logging income and expenses digitally takes time, and starting early means no scramble later.
- Talk to your accountant. Discuss how your quarterly workflow will change. If you do not have an accountant, consider getting one — MTD increases the frequency of contact and a good accountant will save you more than their fee.
- Do not wait until April. HMRC's systems, software integrations, and accountant availability will all be under pressure as deadlines approach.
Frequently Asked Questions
Do I still need an accountant with MTD?
Yes, many tradespeople will still benefit from an accountant under MTD. While compatible software handles the submissions, an accountant helps you categorise expenses correctly, claim all allowable deductions, and review your quarterly figures before they are submitted to HMRC. With four submissions per year instead of one, the relationship becomes more frequent rather than less important.
Can I use a spreadsheet?
Not on its own. Spreadsheets do not connect directly to HMRC's systems. However, you can continue using a spreadsheet for your record keeping if you also use bridging software that reads your spreadsheet and submits the data to HMRC in the required format. This is a legitimate option but adds an extra step compared to using a fully integrated MTD app.
What if I miss a quarterly deadline?
You will receive one penalty point for each missed deadline. The first three missed deadlines result in warning points only. On reaching four points, a £200 fine is issued. Points expire after 24 consecutive months of on-time submissions. Submit as soon as you realise you have missed a deadline to limit points accumulation.
Does MTD affect CIS subcontractors?
Yes. CIS subcontractors who are self-employed and above the income threshold are subject to MTD ITSA in the same way as any other sole trader. Your CIS deductions are still offset against your tax bill at the end of the year via the Final Declaration, but you will still need to make quarterly submissions of your gross income and expenses throughout the year.
I am below the threshold — do I need to worry?
Not immediately, but the thresholds are dropping over time and HMRC intends to bring most self-employed people into MTD eventually. If your income is between £20,000 and £30,000, you will likely be mandated from April 2028. Even if you are currently below £20,000, it is worth choosing digital record keeping software now so the transition is straightforward when your threshold is reached.
Does MTD affect my VAT returns?
MTD for VAT is a separate obligation that has been in force since 2019 and applies to all VAT-registered businesses regardless of income. If you are already VAT-registered you should already be using MTD-compatible software for VAT. MTD ITSA is an additional layer on top of this for your income tax reporting. Some software handles both VAT and ITSA in the same package, which simplifies your accounting workflow.