Making Tax Digital for Income Tax (2026–2028): Sole Trader FAQs Answered

Making Tax Digital for Income Tax (often shortened to MTD for Income Tax or MTD ITSA) is one of the biggest practical changes to Self Assessment in a generation. If you’re a sole trader (or you have property income), it’s completely normal to have questions — especially about who’s affected, when it starts, and what you actually have to do.

This long-form Q&A brings together the questions we’re seeing most often online and in practice at Tax Digital. It focuses on the 2026 rollout and what it means day-to-day, in plain English.

MTD for Income Tax: the key dates (2026–2028)

The thresholds are based on qualifying income (broadly, your gross turnover from self-employment and/or gross property income — not profit). HMRC will use information from your tax return to decide when you must join.

FAQs: Making Tax Digital (MTD) for sole traders

1) What is Making Tax Digital for Income Tax (MTD ITSA), in simple terms?

MTD for Income Tax changes how you keep records and how you send information to HMRC. Instead of doing everything once a year via a Self Assessment tax return, you’ll:

• keep your business records in a digital format (using MTD-compatible software)
• send quarterly updates to HMRC (summary figures, not a full tax return)
• do an end-of-period statement (EOPS) to finalise each business activity
• submit a Final Declaration to confirm your overall taxable income for the year (this is the closest equivalent to your current tax return)

In practice, it’s a move towards more frequent reporting and better record keeping, with the aim of reducing errors and keeping tax information up to date.

2) Who has to comply with MTD for Income Tax from April 2026?

From April 2026, you’ll need to comply if:

• you’re an individual (not a limited company) and
• you have self-employment income and/or property income, and
• your qualifying income is over £50,000

If you’re under that threshold, you may still be brought in later (April 2027 or April 2028) depending on your income level.

3) What counts as “qualifying income” for the £50k/£30k/£20k thresholds?

Qualifying income is generally based on gross income (turnover), not profit. It includes:

• gross self-employment income (before expenses)
• gross property income (before expenses)

It’s important because someone with modest profits but high turnover (for example, high costs or lots of pass-through expenses) may still cross the threshold.

If you’re close to a threshold, it’s worth checking early so you’re not caught out.

4) I’m a limited company director — does MTD for Income Tax apply to me?

MTD for Income Tax is mainly aimed at individuals with self-employment and/or property income. If you only trade through a limited company and you don’t have self-employment or property income personally, MTD for Income Tax may not apply to you.

Important: MTD for Corporation Tax is not mandated for 2026 (it’s widely expected to be later, often discussed as 2028+). However, there is a separate change: as of March 2026, companies must use commercial software to file CT600s (rather than HMRC’s free service), so it’s still worth planning your systems.

5) I’m a landlord — does MTD for Income Tax apply to property income too?

Yes. Property income is part of the MTD for Income Tax picture. If your gross property income (and/or combined with self-employment income) puts you over the relevant threshold, you’ll be expected to join from the applicable start date.

If you’re both self-employed and a landlord, you may have more than one “business activity” to finalise at year-end (for example, one for your trade and one for property).

6) Is MTD replacing Self Assessment completely?

It’s more accurate to say Self Assessment is changing shape. You’ll still effectively provide annual information to finalise your tax position, but it’s broken into parts:

• Quarterly updates (in-year summaries)
• EOPS (year-end finalisation per business activity)
• Final Declaration (the final sign-off for the year, including other income)

So the annual “tax return moment” doesn’t disappear — but the record keeping and reporting become more structured throughout the year.

7) What are quarterly updates — and do they mean I’ll pay tax four times a year?

Quarterly updates are submissions of summary totals of income and expenses for each quarter. They are not a full tax return and they don’t finalise your tax bill.

Quarterly updates do not automatically mean you’ll pay Income Tax quarterly. The payment system is separate. Many people will still pay via the existing Self Assessment payment timetable (including payments on account where relevant), unless HMRC changes those rules in future.

What quarterly updates do mean in practice is that you’ll be keeping your records up to date and sharing figures with HMRC regularly.

8) Can I just file nil quarterly updates and sort it out at year end?

This is a very common question. In most real-life cases, nil quarterly updates are not appropriate if you are trading and receiving income. Quarterly updates should reflect what’s actually happened in the quarter (even if that quarter was quiet).

If you genuinely had no income and no expenses in a quarter, a nil update may be possible — but you should be careful. Regular nil filings when you’re actually trading could be viewed as non-compliance and may create problems later.

If your income is seasonal or irregular, the answer is usually to report the real figures each quarter and let the year-end process finalise everything properly.

9) What counts as “digital records” under MTD?

Digital records are the basic details of your business transactions stored in a digital form. In practice, this usually means recording:

• the date of the transaction
• the amount
• a description (what it was for)
• the category (income type or expense type)

You don’t necessarily have to scan every receipt, but good evidence matters. A tidy digital trail makes year-end much easier, and it helps if HMRC ever asks questions.

10) Can I use spreadsheets for MTD for Income Tax?

Spreadsheets may still be possible, but there’s a catch: you’ll usually need bridging software to connect your spreadsheet to HMRC and submit the required updates. The key requirement is that the information flows through digital links (rather than copying and pasting figures manually between systems).

For many sole traders, using straightforward accounting software is simpler and reduces the risk of errors. That said, if you already have robust spreadsheets and you’re disciplined with record keeping, a spreadsheet-plus-bridging approach can work.

11) What software do I need for MTD ITSA?

You’ll need MTD-compatible software that can:

• keep digital records
• send quarterly updates to HMRC
• support the year-end submissions (EOPS and Final Declaration)

Some people will use full accounting software; others will use a simpler tool designed for sole traders. The “best” option depends on how you work, whether you’re VAT registered, and how complex your income is.

12) Do I have to connect my bank account to the software?

No — bank feeds are helpful, but they’re not always mandatory. Many people choose to connect their bank because it saves time and reduces missed transactions.

If you don’t connect your bank, you’ll need a reliable routine for recording income and expenses digitally. The important part is that your records are complete, accurate, and up to date.

13) What expenses can I claim — and will MTD change what’s allowable?

MTD doesn’t change the underlying rules on what you can claim. You can still claim expenses that are wholly and exclusively for business.

What MTD changes is the discipline of recording those expenses through the year, rather than trying to rebuild everything at the end.

Generic examples of common allowable costs include:

• business insurance
• mobile phone and internet (business proportion)
• software subscriptions
• travel costs (business journeys)
• professional fees (accountancy, legal)

14) What about working from home — can I still claim it under MTD?

Yes. If you work from home, you can usually claim either:

• a simplified expenses flat-rate amount (if eligible), or
• a proportion of actual household costs based on reasonable usage

MTD doesn’t remove these options. The practical difference is you’ll want a clear method and to record it consistently so the year-end figures are easy to support.

15) When are the quarterly update deadlines?

Quarterly updates follow the tax year and are submitted after each quarter end. The exact due dates depend on HMRC’s rules for the submission window (often discussed as roughly one month after the quarter end).

In practice, the safest approach is to build a routine: close off your quarter promptly, reconcile your records, and submit well before the deadline. Leaving it late increases the risk of errors and missed submissions.

16) Will there be penalties if I’m late with quarterly updates?

HMRC has been moving towards a points-based penalty system for late submissions in other areas, and similar principles are expected for MTD for Income Tax. The key message is simple: deadlines will matter, and repeated lateness is likely to trigger penalties.

If you think you’ll struggle, it’s better to put support in place early — whether that’s software training, a better admin routine, or help from an accountant.

17) Are quarterly updates based on estimates or exact figures?

They should be based on your records for that quarter. They’re not intended to be a perfect calculation of your final tax bill, because you still have the year-end process to make adjustments (for example, accounting entries, claims, and final checks).

That said, the better your bookkeeping, the more useful those in-year figures will be for budgeting and avoiding nasty surprises.

18) If everything is digital under MTD, do I still need an accountant?

You’re not required to have an accountant, but many sole traders find that MTD increases the value of professional support. Not because you can’t do it — but because you’re being asked to do things more often, and mistakes can be expensive or stressful.

An accountant can help with:

• choosing and setting up software
• building a simple quarterly routine
• ensuring expenses and claims are treated correctly
• handling year-end finalisation and the Final Declaration

Many clients choose a middle ground: they do the day-to-day record keeping, and we review and submit.

19) What if I have more than one business, or I’m both employed and self-employed?

It’s common to have mixed income. MTD for Income Tax focuses on your self-employment and property activities, but your final tax position still includes everything (employment, dividends, pensions, etc.).

In practice:

• you may submit quarterly updates for each relevant business activity
• you’ll finalise each activity at year end (EOPS)
• you’ll make a Final Declaration that pulls your whole tax year together

This is an area where good organisation (and sometimes professional support) makes a big difference.

20) Will I have to use cash basis accounting under MTD?

Not necessarily. Some sole traders use the cash basis (recording income and expenses when money moves), while others use traditional accounting (accruals). MTD doesn’t automatically force everyone into one method, but your software setup and your year-end approach need to match the basis you’re using.

If you’re unsure which basis is right for you, it’s worth getting advice — the “right” answer depends on your situation.

21) I own a rental property jointly — how does that work under MTD?

Jointly owned property income is still reported based on your share. Under MTD, you’ll want to make sure the records clearly show:

• gross rents received
• allowable expenses
• how the income and costs are split between owners

Good digital records help avoid confusion at year end, especially where one person collects rent and pays bills on behalf of both owners.

22) How do I prepare now, before MTD starts for me?

Even if your start date is April 2027 or April 2028, preparing early reduces stress. A sensible plan usually looks like this:

1. Work out your likely start date based on your qualifying income.
2. Choose software (or decide on spreadsheets + bridging) and set it up properly.
3. Create a simple weekly routine: capture sales, photograph or file receipts, and keep on top of mileage/travel logs.
4. Reconcile monthly so your records match your bank.
5. Do a “practice quarter” so you’re comfortable before it becomes mandatory.

The aim is not perfection — it’s consistency. Small, regular admin beats a year-end panic every time.

23) What if I’m near the £50k/£30k/£20k threshold — should I assume I’m in?

If you’re close, it’s wise to act as though you’ll be included, at least in terms of getting your records and software ready. A small increase in turnover can move you over a threshold, and you don’t want to be setting everything up at the last minute.

If you’re consistently under a threshold, you may have more time — but you’ll still benefit from digital record keeping.

24) What happens if I don’t join MTD when I’m supposed to?

If MTD applies to you and you don’t comply, you risk:

• late submission penalties
• extra HMRC attention and time spent dealing with queries
• rushed, error-prone record keeping (which can lead to paying the wrong tax)

If you think you should be in MTD and you’re not ready, don’t ignore it. Get help early and put a plan in place.

25) Will HMRC tell me what tax I owe after each quarterly update?

HMRC may provide an estimated view based on the information submitted, but quarterly updates are not the final calculation. Your final tax position depends on year-end adjustments, allowances, and other income.

The most helpful use of quarterly updates is often budgeting: you can set money aside regularly, rather than hoping the year-end bill will be manageable.

26) What’s the simplest way to think about MTD as a sole trader?

Think of MTD as moving from a once-a-year scramble to a steady, manageable routine:

• keep records digitally as you go
• send a summary to HMRC every quarter
• finalise properly at year end

If you set up the right system early, it becomes a background admin task — not a recurring crisis.

A practical checklist for 2026 readiness

If you’d like, we can help you map out a simple workflow that fits how you actually run your business — keeping you compliant without making your admin feel like a second job.