Making Tax Digital: 10 Things Sole Traders Need to Know Before April 2027
If you are a sole trader, landlord or small independent business owner, Making Tax Digital may already be on your radar.
For some people, it is already here. Making Tax Digital for Income Tax became mandatory on 6 April 2026 for sole traders and landlords with qualifying income over £50,000. From 6 April 2027, the threshold drops to £30,000. That means many more small businesses will need to get ready.
The good news is that MTD does not need to be intimidating. In simple terms, it means keeping digital records, using compatible software and sending HMRC regular summaries of your income and expenses.
Here are 10 practical things to know.
1. Check whether you need to use Making Tax Digital
You may need to use Making Tax Digital for Income Tax if you:
- Are registered for Self Assessment
- Earn income from self-employment, property or both
- Have qualifying income above the relevant threshold
Qualifying income means your total turnover from self-employment and property income before expenses. It is not your profit after costs.
The timetable is:
| Your qualifying income | When MTD starts |
|---|---|
| Over £50,000 for the 2024–25 tax year | 6 April 2026 |
| Over £30,000 for the 2025–26 tax year | 6 April 2027 |
| Over £20,000 for the 2026–27 tax year | 6 April 2028 |
For example, if your 2025–26 Self Assessment figures show more than £30,000 of combined sole trader and property income, you will need to use MTD from 6 April 2027.
You can use HMRC’s online checker to find out when you need to start.
2. The rules can apply to combined income
The threshold does not always relate to one business on its own.
If you run a dog-walking business and receive rental income, HMRC may look at the combined total. The same applies if you have more than one sole trader business.
For example:
- Dog walking turnover: £24,000
- Coaching income: £9,000
- Property income: £4,000
- Combined qualifying income: £37,000
In this example, the total is above £30,000. The business owner would therefore need to prepare for MTD from April 2027, assuming the figures relate to the relevant tax year.
It is worth reviewing all your income sources now rather than looking at each activity separately.
3. You will need compatible software
MTD requires you to keep your records digitally and submit information through software that can connect to HMRC.
HMRC does not provide the bookkeeping software itself. You can choose an all-in-one system or use more than one tool, depending on how your business works.
Some software can help you:
- Record sales and expenses
- Photograph and store receipts
- Reconcile your bank account
- Track what customers owe you
- Prepare quarterly updates
- Submit your final tax return
If you prefer spreadsheets, you may still be able to use them for your records. However, you will also need compatible bridging software to connect those records to HMRC.
The most important point is to choose software that suits your business. A dog walker with straightforward income may not need the same system as a coach with several income streams and regular expenses.
You can check HMRC’s list of software compatible with Making Tax Digital for Income Tax.
4. Your records need to be kept digitally
Your digital records should show the main details of your business income and expenses, including:
- The amount
- The date money was received or spent
- The type or category of income or expense
You should also keep supporting information, such as invoices, receipts and mileage records.
Digital record-keeping does not mean every piece of paper must disappear immediately. You can scan or photograph receipts and store them securely. What matters is that your main accounting records are created and kept in compatible software.
Keeping records little and often is usually much easier than trying to reconstruct everything at the end of the year. It also helps you spot missing payments, unusual costs and cash-flow pressure earlier.
5. Quarterly updates are summaries, not four tax returns
One of the biggest concerns about MTD is the idea of completing four tax returns every year.
That is not quite what happens.
You will send HMRC a quarterly update showing the total income and expenses recorded during that period. These are summaries, rather than full tax returns.
Your software will use your digital records to prepare the figures. You will still need to check the information before sending it.
Quarterly updates can also give you a clearer view of your likely tax position throughout the year. This can make it easier to set money aside and plan spending, instead of receiving one large surprise bill after the tax year ends.
6. Know the usual quarterly deadlines
For many businesses using standard tax-year accounting periods, the quarterly dates are:
| Period covered | Deadline |
|---|---|
| 6 April to 5 July | 7 August |
| 6 July to 5 October | 7 November |
| 6 October to 5 January | 7 February |
| 6 January to 5 April | 7 May |
For businesses joining MTD from 6 April 2027, the first quarterly update will generally cover 6 April to 5 July 2027 and be due by 7 August 2027.
The following updates will usually be due by:
- 7 November 2027
- 7 February 2028
- 7 May 2028
Some businesses use calendar-year accounting periods instead. Your software or accountant can help you confirm which dates apply to you.
7. You will still have an annual tax return
MTD does not remove the need to complete your annual tax return.
At the end of the tax year, you will still need to check your figures, add other income, claim relevant allowances and make any necessary adjustments. You will then submit your final declaration using your compatible software.
You will also still need to pay your tax bill by the usual deadline of 31 January following the end of the tax year.
For the tax year ending 5 April 2028, the final declaration and tax payment deadline will generally be 31 January 2029.
This is one reason it can be useful to work with a Self Assessment tax return accountant. Quarterly updates do not replace careful year-end tax planning.
8. Penalties are points-based, but deadlines still matter
The MTD penalty system is points-based.
If you miss a quarterly update deadline, you may receive one penalty point. Once you reach the relevant points threshold, a £200 penalty can apply. Further missed deadlines may lead to additional penalties.
HMRC has confirmed that penalty points will not be applied for late quarterly updates during the 2026–27 tax year. This is intended to give the first group of businesses time to adjust.
However, you still need to submit your updates. Other obligations, including the final declaration and paying tax on time, still apply.
For businesses joining from April 2027, it is sensible to prepare on the basis that the usual points-based rules will apply unless HMRC announces a change.
A simple routine can help. Put the quarterly deadlines in your diary, keep your records up to date and allow time to check the figures before submitting them.
9. Start preparing before the deadline
You do not need to wait until April 2027.
A calm preparation plan could look like this:
- Check your 2024–25 and 2025–26 income figures.
- Add together income from self-employment and property where relevant.
- Check whether you need to use MTD and when.
- Choose compatible bookkeeping software.
- Create a system for recording sales, expenses and receipts.
- Open or connect your business bank account if appropriate.
- Practise reviewing your figures each month.
- Arrange support if you are unsure about the software or tax treatment.
Starting early gives you time to learn the system without pressure. It also means you can make sure your records are accurate before your first quarterly update is due.
Our Bookkeeping Software Setup & Coaching service can help you choose and set up suitable software, including practical guidance for keeping your records tidy.
10. You do not have to manage it alone
Making Tax Digital is a change in the way you organise and report your business finances. It is not a test of whether you are “good with numbers”.
If software feels confusing, your records have become messy or you are unsure whether the rules apply to you, support can make the process much simpler.
A making tax digital accountant can help you understand your responsibilities, choose suitable software and keep your records moving in the right direction.
An accountant for sole traders can also review your income and expenses, explain what you need to do and make sure your year-end figures are prepared accurately. If you need broader planning support, a small business tax advisor can help you look at cash flow, tax planning and your next business decisions together.
Making Tax Digital can bring more clarity
Although MTD adds some regular tasks, it can also help you stay on top of your finances.
You may have a clearer view of:
- How much you are earning
- Which costs your business is incurring
- Whether you are setting aside enough for tax
- How much cash is available
- Whether your prices and profit targets need reviewing
The key is to avoid leaving everything until the last minute. Check your position, choose a system that fits your business and ask for help where you need it.
At Barnard Accountancy, we explain the process in plain English and help you move forward without unnecessary jargon or bureaucracy. If you would like to talk through your situation, book a friendly, focused consultation with no obligation.
This article is intended as general guidance and reflects information available on 25 September 2026. HMRC rules and guidance can change, so check the latest official information or speak to a qualified adviser about your circumstances.