Making Tax Digital for Sole Traders: What You Need to Do

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's programme to digitise the tax reporting process for self-employed individuals and landlords. Under MTD, you'll use compatible software to keep digital records and submit quarterly updates to HMRC — replacing the current annual Self Assessment return for most purposes.

Who Does It Affect and When?

MTD for ITSA is being rolled out in phases based on income level:

April 2026: Mandated for sole traders and landlords with qualifying income over £50,000
April 2027: Extended to those with qualifying income over £30,000
April 2028: Extended to those with qualifying income over £20,000

"Qualifying income" refers to income from self-employment and property combined. If you earn £55,000 from freelance work, you'll be in the first phase starting April 2026.

What Changes Under MTD?

Instead of filing one annual Self Assessment return, you'll submit:

Four quarterly updates (covering April–June, July–September, October–December, January–March)
An End of Period Statement at the end of the tax year confirming your final figures
A Final Declaration replacing the current tax return

Quarterly submissions are income and expense summaries — not detailed breakdowns. They're designed to be generated automatically by your accounting software. You won't pay additional tax quarterly; your payment dates remain the same.

Compatible Software

You must use HMRC-recognised software to comply with MTD. HMRC maintains a list of approved software providers on gov.uk. Look for software that can submit quarterly updates directly to HMRC's API. Many cloud accounting tools are already MTD-compatible.

What You Need to Do Now

Check whether your income level means you're in scope for April 2026 or a later date
If you're in scope, choose compatible software and start using it before the mandation date
Ensure your record-keeping is digital from the start of the relevant tax year
Sign up for the MTD for ITSA pilot on gov.uk if you want to test the process early

Benefits of MTD for Freelancers

While the additional reporting requirement sounds burdensome, there are genuine benefits. Quarterly reporting keeps your finances up to date, making it easier to budget for tax, spot errors early, and avoid a stressful year-end scramble. If you're already using accounting software consistently, the transition to MTD should be relatively straightforward.

Penalties for Non-Compliance

HMRC is introducing a new points-based penalty system alongside MTD. Each missed submission earns a point; accumulate enough points and a financial penalty applies. The system is designed to be proportionate — occasional late submissions won't immediately result in fines — but persistent non-compliance will.

Getting Ready

The best preparation is to start keeping thorough digital records now, even before you're mandated. Accurate, categorised records make quarterly submissions quick. Tools that automatically categorise income and expenses reduce the workload to a matter of minutes per quarter.