Making Tax Digital for sole traders, explained
If you're self-employed, Making Tax Digital for Income Tax replaces your annual Self Assessment return with quarterly digital updates sent through compatible software. Here's what changes, when it applies to you, and how to choose software without paying more than you need to.
Does it apply to you?
It applies once your qualifying income— your gross self-employment turnover plus any rental income, before expenses — is over the relevant threshold. It's phased in highest incomes first (April 2026 (£50k+), then April 2027 (£30k+), then April 2028 (£20k+)). Check the exact figures and dates on the deadlines & who's affected page.
What changes for sole traders
The annual return gives way to a quarterly rhythm. In practice you'll:
- Keep digital records of your income and expenses.
- Send four quarterly updates a year to HMRC from compatible software.
- Submit a final declaration after the tax year to confirm the totals and your tax.
What software do you need?
You need software that's HMRC-recognised for MTD for Income Tax. The options fall into three camps: bridging tools that file from a spreadsheet you already keep, guided filers that walk you through it, and full cloud accounting. The right one depends on how you already work — not on the biggest brand name.
See the best MTD software for sole traders, the cheapest options overall, or tools that can be genuinely free.
How much should it cost?
Far less than the headlines suggest. Vendors advertise a “from £X/month” price that is usually ex-VAT and often on a plan that doesn't cover everything you do. We rank tools by the true VAT-inclusive annual cost of the cheapest plan that actually fits. The finder gives you that figure for your exact situation.
Common mistakes to avoid
- Leaving software until the last minute, then rushing the setup mid-year.
- Buying full accounting when a bridging tool or guided filer would do the job for less.
- Comparing a vendor's ex-VAT headline against a rival's VAT-inclusive price.
- Using profit rather than gross income to check whether you're over the threshold.
Frequently asked questions
- When do sole traders have to use Making Tax Digital?
- It depends on your qualifying income — the gross total of your self-employment and any property income. The highest incomes are mandated first, with the threshold stepping down over the following years. The deadlines guide has the exact dates.
- What's the best MTD software for sole traders?
- It depends on whether you want the cheapest way to file or fuller bookkeeping. Our ranked list of the best MTD software for sole traders orders every compatible tool by its true annual cost.
- Do I still file a Self Assessment return?
- For your self-employment income, the quarterly updates plus a final declaration after the tax year replace the annual Self Assessment return. Any other income is reported as usual.
- Can I keep using a spreadsheet?
- Yes — bridging software lets you keep your spreadsheet and just files the figures to HMRC. It's usually the cheapest way to comply if you're already happy in a spreadsheet.
Keep reading
General information, not tax advice. Confirm your own position with HMRC or a qualified accountant.