Making Tax Digital for Income Tax — what sole traders need to know

Making Tax Digital (MTD) for Income Tax is changing how many sole traders and landlords keep records and report to HMRC. Instead of relying on a single annual Self Assessment return in isolation, you keep digital business records and send quarterly updates through compatible software — then finalise your tax position at the end of the year.

If you trade from Chislehurst, Bromley or further afield, the rules are the same: what matters is your qualifying income and when you fall into scope. This guide explains the phased rollout, what “digital records” actually means in practice, and how to prepare without turning it into a last-minute scramble.

Who needs to use MTD for Income Tax

MTD for Income Tax generally applies to individuals registered for Self Assessment who receive income from self-employment, property, or both, once their qualifying income (broadly gross self-employment plus property income, before expenses) is above HMRC’s threshold for the relevant tax year.

HMRC is rolling the obligations out in stages:

• From 6 April 2026 — if qualifying income for 2024/25 was more than £50,000
• From 6 April 2027 — if qualifying income for 2025/26 was more than £30,000
• From 6 April 2028 — if qualifying income for 2026/27 was more than £20,000

HMRC reviews your Self Assessment return and writes to people who need to start. If you have already received a letter for April 2026, treat that as your cue to get software and processes in place — even if you are still catching up. Some people are exempt or outside scope; do not assume you are in or out without checking. Thresholds, exemptions and start dates can change — confirm your position on GOV.UK or with your adviser before you rely on a particular date.

What “qualifying income” usually means

Qualifying income is not the same as taxable profit. It is closer to the gross income from self-employment and property that HMRC uses to decide whether you cross the threshold. Allowable expenses that reduce your tax bill do not usually pull you back under the MTD threshold if your gross figures were already over the line. If you have both a trade and a property portfolio, add the relevant gross amounts together when you think about timing. When in doubt, use HMRC’s published checker or ask us to walk through your last return with you.

What you have to do each year

Once you are in scope, the rhythm typically looks like this:

1. Keep digital records of income and expenses in software that can talk to HMRC.
2. Send four quarterly updates summarising income and expenses for each update period.
3. Submit your tax return through compatible software by the usual 31 January deadline after the tax year, including adjustments, reliefs, other income and the tax you owe.

For taxpayers who started from April 2026 using standard update periods, HMRC’s published timetable includes a first quarterly update due by 7 August 2026, then further updates by 7 November 2026, 7 February 2027 and 7 May 2027, with the tax return due by 31 January 2028. Calendar update periods (for accounting periods ending 31 March) start digital record-keeping from 1 April rather than 6 April. Always check the dates that apply to your own accounting period.

Quarterly updates are progress reports, not a final tax bill. You still finalise deductions, reliefs and other income on the year-end return. That is why clean digital books throughout the year matter more than heroic adjustments every January.

What “digital records” means in practice

Digital records are not the same as a shoebox of paper that you type up once a year. You need to create and store business records digitally in a way that MTD-compatible software can use to prepare updates and your return. Spreadsheets alone are usually not enough once MTD for Income Tax applies, unless they are used with bridging software that HMRC accepts — and even then, a proper cloud package is often simpler long term.

Choose compatible cloud accounting software early. Bank feeds, digital invoices and a clear chart of accounts make quarterly updates far less painful than reconstructing the year from memory every three months. Good bookkeeping habits — coding purchases promptly, separating personal and business spending, and reconciling the bank — matter more than ever.

Common pitfalls we see

• Waiting until the first quarterly deadline to open a software subscription
• Mixing personal and business spending on one card with no monthly review
• Ignoring property income when estimating whether you are in scope
• Assuming your accountant “just knows” to send updates without agreeing who owns each submission
• Treating quarterly updates as optional estimates rather than mandated filings

How to prepare without the stress

• Confirm whether you are already in scope, or when you are likely to be, based on qualifying income.
• Pick compatible cloud accounting software and migrate opening figures cleanly.
• Separate business and personal bank accounts if you have not already.
• Agree who will send quarterly updates — you, your bookkeeper, or your accountant.
• Build a simple monthly checklist so the quarter-end is a review, not a reconstruction.

If you are a landlord as well as a trader, remember that property income counts towards qualifying income. Multiple income streams do not mean multiple softwares by default — but they do need clear digital records for each business.

How Muftals Accountancy helps

We work with sole traders and small businesses across Chislehurst, Bromley, Orpington, Swanley and Sidcup — and remotely across the UK. For MTD we can:

• Confirm whether MTD applies to you and from when
• Recommend a practical software approach using compatible cloud accounting software
• Set up processes for quarterly updates and year-end submissions
• Handle submissions as part of your ongoing engagement

Explore our Making Tax Digital service and sole trader accountancy, or book a free meeting to map your next steps. Local readers may also find our Chislehurst accountants page useful.