MTD for Sole Traders: What You Need to Know

taabvirtual
May 30
2 min read

Making Tax Digital (MTD) might sound like something you can put off for another day, but if you're a sole trader, now’s the time to get clued up. Whether you’re a self-employed plumber, graphic designer, or dog walker, MTD is going to affect the way you manage your tax, and getting ahead of the game will save you a whole lot of stress later.

Here’s what you need to know and how to get ready.

What is Making Tax Digital (MTD)?

Making Tax Digital is a government initiative designed to make the UK tax system more effective, efficient, and easier for taxpayers. It means keeping digital records and submitting tax information to HMRC using approved software.

MTD for VAT is already in place, and the next phase, MTD for Income Tax Self-Assessment (ITSA) is coming for sole traders and landlords.

Who Will Be Affected?

If you're a sole trader with an income of over £50,000, you'll need to follow MTD rules from April 2026. Those earning over £30,000 will join from April 2027.
This applies to gross income, not profit, so even if you don’t feel like you’re earning the limit, check your figures carefully.

What Will Change?

Currently, you submit a Self-Assessment tax return once a year. Under MTD for ITSA, you'll need to:

Keep digital records of your income and expenses
Submit quarterly updates to HMRC using MTD-compliant software
File a final declaration at the end of the tax year

So instead of one big annual return, you'll be reporting every three months.

What Do You Need to Do to Prepare?

Here’s how to get ready:

1. Start using digital record-keeping now

If you’re still using spreadsheets or a notebook, it’s time to make the switch. Accounting software like Xero or FreeAgent can help you stay on top of things and will be MTD-compliant.

2. Get to know your numbers

With quarterly updates required, keeping tabs on your income and expenses regularly is key. No more shoeboxes full of receipts!

3. Speak to your accountant

An accountant can help you get set up with the right software, keep your records in shape, and make sure you’re on track for compliance. If you’re not sure what applies to you, we can give you tailored advice.

4. Don’t leave it to the last minute

The deadlines might seem a while off, but getting set up early means less pressure and fewer surprises down the line.

MTD is a big shift, but it doesn’t need to be scary. With the right tools and support, it can actually help you run your business more efficiently and keep your finances in better shape all year round.

If you're unsure where to start, we’re here to help. Whether you need help choosing the right software, understanding the rules, or getting your books in order, just get in touch.