Making Tax Digital - Sole Traders

From 6th April 2026, sole-traders and landlords with gross qualifying income above the threshold of £50,000 will be required to keep digital business records and submit quarterly updates to HM Revenue & Customs. The threshold is planned to be reduced to £30,000 for 2025-26 and £20,000 for 2026-27.

The qualifying income is your combined income from trading and property before deducting expenses. It does not include PAYE income, dividends, bank interest or income from a partnership.

The test is based on your self-assessment Tax Return for the year ended 5th April 2025.

The first quarterly update filing deadline is 7th August 2026. However, this won’t be your first step. Here are key steps to take now to be ready:

1 – Select a compatible software. Most mainstream accounting software will be able to submit the quarterly update. However, it is still possible to keep your records in an excel spreadsheet and use a bridging software to submit the information to HMRC. An example of cost-effective bridging software can be found here https://absoluteexcelincometaxfiler.co.uk/mtd-for-income-tax/

2 – Register for MTD with HMRC. Yes, although you are already registered for self-assessment and HMRC may have written to you notifying you of the need to comply they won’t automatically register you. You can register for MTD via HMRC’s MTD sign up facility. Be careful to select whether they want to register from April 2025 or April 2026. https://www.gov.uk/guidance/sign-up-your-business-for-making-tax-digital-for-income-tax

3 – Begin keeping a digital summary of income and expenditure transactions. The digital summary of each transaction should show the amount, category and date of income/expenses. The categories used will follow those on the current self-assessment Tax Return.

There are some simplification options. A key one to consider is three-line accounts. This means you can record each item of income and expense without needing to allocate it to a specific category of income or expense. Only the total income and total expenses will need to be reported each quarter, with no detailed categorisation needed.

At the end of the tax year an After the fourth quarterly update has been submitted, you will need to file an ‘MTD tax return’. This will have similarities with the current self-assessment Tax Return but will pre-populate with the information from the quarterly updates filed. Those entries will need to be adjusted for accounting and tax purposes.

If you are a sole trader as well as a landlord you will need to submit two reports each quarter. One covering the sole trading activity, the other covering the income as a landlord.

If you would like to discuss how WB Accountant can help you keep up to date with your MTD obligations please contact us