Making Tax Digital for sole traders: what changes and when

Making Tax Digital for sole traders: the dates

Making Tax Digital for sole traders is being phased in by income. HMRC checks the Self Assessment return you've already sent to decide whether you're in scope for a later year. Here are the dates from GOV.UK's find out if and when you need to use Making Tax Digital for Income Tax page:

HMRC says it reviews your return and checks your qualifying income each tax year. Partnerships aren't included yet: GOV.UK says it will set out their timeline later.

Working out your qualifying income

This is the figure that decides whether Making Tax Digital for sole traders applies to you, and it's easy to get wrong. GOV.UK says qualifying income is "your total income from self-employment and property", measured before expenses, which it also calls turnover.

Counts

Your self-employment turnover, and your rental income (or your share of it if you own property jointly).

Doesn't count

Wages taxed through PAYE, your share of partnership profit, dividends (including from your own company), the State Pension and private pensions.

Before or after costs?

Before. A business with £55,000 of sales and £20,000 of costs has qualifying income of £55,000, not £35,000.

That last point matters most. Many sole traders think of their income as profit, but Making Tax Digital for sole traders uses turnover.

Examples: are you in?

These examples apply GOV.UK's rules on Making Tax Digital for sole traders. They're illustrations, not advice about your own position.

A year under the new rules

The big change with Making Tax Digital for sole traders is rhythm. Instead of one return a year, you send four quarterly updates and then a final return. Updates are cumulative: GOV.UK says each one covers from the start of the tax year to the end of the update period, showing totals for each income and expense category. HMRC doesn't receive your individual receipts or invoices.

1. 1

   6 April to 5 July

   First update due by 7 August.

2. 2

   6 April to 5 October

   Second update due by 7 November.

3. 3

   6 April to 5 January

   Third update due by 7 February.

4. 4

   6 April to 5 April

   Fourth update due by 7 May, in the following tax year.

5. 5

   Final return

   Submitted through your software, with your tax paid. For 2026 to 2027, the deadline is 31 January 2028.

If your accounting period ends on 31 March, you can use calendar periods instead (1 April to 30 June, and so on), with the same submission dates. You don't need to make accounting or tax adjustments in each update; corrections flow into the next one. If Making Tax Digital for sole traders applied to you from April 2026, your second update for 2026 to 2027 is due by 7 November 2026.

Digital records: what you keep

Under Making Tax Digital for sole traders, you create a digital record for each item of income and expense, using compatible software. GOV.UK's use Making Tax Digital for Income Tax guide says each record needs:

• the amount
• the date
• a category, using the same categories as Self Assessment

In practice, most records for Making Tax Digital for sole traders start life as bank transactions. If your business money already runs through one account, the software can pull those in and you add the categories. If business and personal spending are mixed, you'll spend longer sorting them each quarter.

Choosing software

HMRC doesn't provide software for Making Tax Digital for sole traders. You choose a compatible product, which can be one all-in-one package or several tools that work together. If you prefer spreadsheets, you can keep using them, but you'll need bridging software to send updates and your final return.

Before you pick, check the product appears on GOV.UK's list of software that works with Making Tax Digital for sole traders, and that it covers everything you need, such as property income or other income on your final return. GOV.UK says your software must let you add other income sources, such as savings or dividends, and record reliefs and allowances.

Penalties in the first year

Under Making Tax Digital for sole traders, late quarterly updates and late returns work on a points system. Each late submission earns a point, and a financial penalty applies once you reach the threshold. For the first year of Making Tax Digital for sole traders, GOV.UK says: "We will not apply penalty points for late quarterly updates for the 2026 to 2027 tax year."

That isn't a free pass. You still have to send all your quarterly updates before you can submit your return, and late payment penalties are separate. They grow the longer a payment is overdue.

Exemptions from Making Tax Digital for sole traders

Some people are exempt automatically, and others can apply. According to GOV.UK, you're automatically exempt if your qualifying income is £20,000 or less, or if you didn't have a National Insurance number before the tax year started. Certain claims on your return also lead to an automatic exemption.

You can apply if you're digitally excluded, meaning it isn't reasonable for you to use software because of, for example, age, health, disability, religious beliefs or no internet access where you are. HMRC says it won't accept an application if your only reason is that you filed on paper before, aren't familiar with software, have few records, or face extra time or cost. If you're exempt, you carry on with a normal Self Assessment return.

How your bank account fits in

GOV.UK doesn't say you need a business bank account for Making Tax Digital for sole traders. But quarterly updates reward tidy records. A separate business bank account that feeds into your software means fewer personal transactions to strip out every three months. Our guide on whether sole traders need a business bank account covers the wider question.

When you compare business bank accounts, check which accounting software each one links to, whether receipts can be captured in the app, and whether the provider's own tools are on HMRC's compatible list. Tide, our featured partner, says Making Tax Digital tools are included on all its plans, including Free. Our Tide for sole traders guide covers eligibility and limits.

Tide is our featured partner. We may earn commission from referrals. Disclosure

Getting-ready checklist

• I've added up my self-employment and property turnover, before expenses.
• I know which Making Tax Digital for sole traders start date applies to me, if any.
• I'm registered for Self Assessment and have sent a return in the last 2 years.
• I've chosen software from HMRC's compatible list.
• My business income and costs go through one account where possible.
• I've put the 7 August, 7 November, 7 February and 7 May deadlines in my diary.

Making Tax Digital for sole traders: FAQs

Sources

• GOV.UK: Find out if and when you need to use Making Tax Digital for Income Tax (checked 25 October 2026)
• GOV.UK: Use Making Tax Digital for Income Tax, including the send quarterly updates section (checked 25 October 2026)
• GOV.UK: Work out your qualifying income (checked 25 October 2026)
• GOV.UK: Exemptions from Making Tax Digital for Income Tax (checked 25 October 2026)
• Tide pricing page for plan features (checked 25 October 2026)