MTD for Income Tax — What Sole Traders Need to Do Now

Written by James Veal

Making Tax Digital for Income Tax (MTD for IT) is no longer on the horizon — it’s here. If you’re self-employed or a sole trader, this change affects how you report your income to HMRC. Here’s what you need to know and what you need to do.

What Is MTD for Income Tax?

MTD for Income Tax is HMRC’s new system that requires self-employed individuals and landlords to keep digital records and submit quarterly updates to HMRC throughout the year — instead of filing a single annual Self Assessment return.

It doesn’t replace Self Assessment entirely. You’ll still file a final annual declaration at the end of each tax year. But the way you report your income and expenses changes significantly. See our Self Assessment page for more on the annual filing process.

Who Does MTD for Income Tax Apply To?

MTD for Income Tax is being rolled out in phases based on income level:

From	Who Is Affected
April 2026	Self-employed and landlords with income over £50,000
April 2027	Those with income over £30,000
April 2028	Those with income over £20,000 (expected)

If your total income from self-employment and/or property is above the relevant threshold, MTD applies to you. This is gross income — not profit. Check HMRC’s eligibility guidance if you’re unsure whether you qualify.

Haven’t signed up yet even though you qualify? From September 2026 HMRC has started signing people up automatically rather than waiting – see our post on HMRC’s automatic MTD sign-up for what that means and why registering yourself first is usually the better move.

What Do You Need to Do?

If you’re in the first wave (income over £50,000), you should already be taking steps to comply. Here’s what MTD for Income Tax requires:

• Keep digital records — all income and expenses must be recorded digitally using HMRC-compatible software
• Submit quarterly updates — you’ll send a summary of your income and expenses to HMRC four times a year
• File a final declaration — at the end of the tax year, you’ll confirm your figures and claim any reliefs or adjustments

What Software Do You Need?

You’ll need HMRC-compatible software to keep records and submit your quarterly updates. At PBAS, we use QuickBooks and Xero — both are fully MTD-compatible and widely used by sole traders across the UK. Spreadsheets alone won’t be sufficient unless you use bridging software alongside them. Good bookkeeping from the start makes MTD compliance much simpler.

What Are the Quarterly Deadlines?

Quarter	Period Covered	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

What Happens If You Don’t Comply?

HMRC is operating a points-based penalty system for MTD for Income Tax. Each missed submission earns a penalty point, and once you reach the threshold, a financial penalty is triggered. Staying on top of your quarterly updates is essential to avoid this. Read our guide on Self Assessment penalties to understand how HMRC’s penalty systems work more broadly.

How PBAS Can Help

MTD compliance doesn’t need to be complicated. At PBAS, we set clients up with the right software, handle their quarterly submissions, and make sure everything is filed accurately and on time. Find out more on our Making Tax Digital page.

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Need Help with This?

PBAS provides affordable bookkeeping and accountancy services for sole traders and small businesses across East Lothian, Edinburgh, Midlothian and throughout Scotland. If you’d like a hand with your accounts, self assessment or any tax matter, get in touch for a free, no-obligation chat.

• Our MTD Support Service
• Our Bookkeeping Services
• VAT Returns

This article provides general guidance only. For specific advice on your circumstances, consult HMRC directly via the GOV.UK MTD for Income Tax guidance or speak to a qualified bookkeeper.