Making Tax Digital for Income Tax: what sole traders need to do before April 2026

From 6 April 2026, Making Tax Digital for Income Tax Self Assessment (MTD ITSA) goes live for sole traders and landlords with combined gross income above £50,000. If that sounds far away, it isn't. Most people I work with need three to four months to get their bookkeeping cleaned up, choose software, and run a few practice quarters before it counts. This guide walks through what's actually changing, who it affects, and a practical preparation timeline.

Who's affected and when

The rollout happens in waves based on your annual gross income (turnover, not profit):

• From April 2026: Sole traders and landlords with gross income over £50,000
• From April 2027: The threshold drops to £30,000
• From April 2028: The threshold drops further to £20,000

Limited companies aren't affected by MTD ITSA. They have a separate Making Tax Digital regime planned for Corporation Tax further down the line, but that hasn't been finalised yet. If you're trading through a company, you can largely ignore this guide for now.

If you have multiple income sources, HMRC adds them together. So if you earn £35,000 from self-employment and £20,000 from a rental property, you're at £55,000 combined and you fall into the April 2026 cohort.

What actually changes

Three big shifts. Understanding them properly is the difference between this being a minor admin tweak and a year of stress.

1. Digital records become mandatory

Spreadsheets are technically allowed if they're connected to MTD-compatible software via "bridging" tools, but realistically most people will move to proper accounting software. Paper records, shoebox receipts, and the kitchen-table approach to bookkeeping are no longer enough. Every transaction needs to be captured digitally and categorised correctly.

2. Quarterly updates replace one annual return

Instead of a single Self Assessment after the year ends, you submit summary income and expense figures four times a year, within one month of each quarter end. The deadlines mirror the standard tax year quarters:

• Quarter 1 (6 April – 5 July): submit by 5 August
• Quarter 2 (6 July – 5 October): submit by 5 November
• Quarter 3 (6 October – 5 January): submit by 5 February
• Quarter 4 (6 January – 5 April): submit by 5 May

Important point most people miss: these quarterly updates are not when you pay tax. Tax payments still follow the existing Self Assessment timetable. The quarterly submissions are about visibility for HMRC, not collection.

3. End-of-Period Statement and Final Declaration

After the four quarterly updates, you submit two final filings:

• End-of-Period Statement (EOPS): confirms the figures for the year, allows accounting adjustments (like accruals, prepayments, capital allowances)
• Final Declaration: ties everything together, including any non-business income, and replaces the current Self Assessment return

Both are due by 31 January following the tax year end. Same deadline as Self Assessment now, but with quarterly admin throughout the year.

What software you'll need

HMRC has approved a list of MTD-compatible software providers. The main ones for sole traders are:

• FreeAgent — free for NatWest, Royal Bank of Scotland, and Mettle business banking customers. Genuinely the easiest entry point if you bank with one of those.
• Xero — powerful, designed for growing businesses, good if you'll eventually incorporate.
• QuickBooks Self-Employed — cheaper, simpler, but the basic tier may struggle with more complex situations.
• Sage Accounting — established, well-supported, decent for those who already use Sage in another context.

For most sole traders earning under £100k, FreeAgent or QuickBooks Self-Employed will be enough. Xero starts to make sense above that, or if you're heading towards incorporation. There's no MTD-compatible option that's free unless you bank with NatWest/RBS/Mettle.

If you've been on spreadsheets for years and the idea of accounting software fills you with dread, the early start matters more than the choice of software. A simple system used properly beats a sophisticated one used badly.

A practical preparation timeline

Here's what I'd recommend for someone realising in late spring or summer that MTD applies to them:

3–4 months before go-live

• Confirm whether MTD applies to you by checking your gross income from the most recent complete tax year
• Pick your software. Don't agonise — you can switch later if needed
• Sign up for an HMRC online services account if you haven't already

2 months before go-live

• Get your bookkeeping current. Catch up on any missing months, make sure expenses are categorised, and reconcile against your bank statements
• If you've been mixing personal and business finances, separate them now. A dedicated business bank account isn't legally required for sole traders but it makes MTD enormously easier
• Authorise your software to talk to HMRC (the technical step is called "agent authorisation" if you have an accountant doing it on your behalf)

The first quarter (April–July 2026)

• Record every transaction as it happens, not in monthly catch-ups
• Submit your first quarterly update before 5 August. Don't leave it to the last day — the system will be busy with thousands of other first-timers

Common mistakes to avoid

Mistake one: assuming it doesn't apply because your profit is under £50k. The threshold is gross income, not profit. A sole trader with £65k turnover and £25k profit is in scope from April 2026.

Mistake two: leaving software setup to the last week. Connecting your bank feeds, importing historic data, and getting the chart of accounts right takes longer than people think. Two weeks is realistic. Two days is not.

Mistake three: treating quarterly updates as tax payments. They're not. You're submitting figures, not money. Tax payment dates haven't changed, and you can still spread the bill via Time to Pay if cash flow is tight.

Mistake four: thinking penalties don't apply yet. HMRC has confirmed a softer initial approach, but late submission penalties under the new points-based system will start counting from day one. Get the rhythm right early.

What to do next

If you're going to be in the £50k+ band when MTD ITSA goes live, the best move is to start running your bookkeeping in MTD-compatible software now, even though you're not legally required to until April. A few months of practice with no penalties at stake is the cheapest insurance you'll buy this year.

If you're under £50k but heading that way, set a reminder for January 2027 to check whether you've crossed the threshold. The April 2027 cohort starts at £30k.

And if you're a landlord wondering whether your £1,000 trading allowance or the property allowance affects this: short answer, they're separate calculations from MTD. The MTD threshold is gross income, not income after allowances. Allowances apply to your tax bill, not to whether you fall in scope.