Making Tax Digital for sole traders: what changes in April 2026

If you're a sole trader in the UK, the way you handle your tax reporting is about to change significantly. HM Revenue & Customs (HMRC) is expanding its Making Tax Digital (MTD) programme, and from April 2026, more sole traders will need to submit their tax information quarterly using digital tools. This means keeping up-to-date digital records and reporting income and expenses every three months instead of annually. Understanding these changes now will save you time, money, and stress down the line.

What is Making Tax Digital (MTD) and Why Does it Matter?

Making Tax Digital is HMRC's flagship initiative to modernise tax administration by moving away from paper-based and manual processes to fully digital tax reporting. Launched initially for VAT-registered businesses with turnover above the VAT threshold, MTD aims to make tax easier to get right, reduce errors, and speed up processing. For sole traders, MTD means submitting quarterly updates of your income and expenses through compatible software, which HMRC then uses to calculate your tax liability. These quarterly updates replace the current system where sole traders typically file one Self Assessment tax return per year.

The move to quarterly reporting can feel daunting, but it offers benefits such as better cash flow management, fewer end-of-year surprises, and an ongoing record of your financial performance. However, it also means you need to be more organised and familiar with digital accounting tools.

Who Will Be Affected from April 2026?

Until now, MTD for Income Tax has applied only to sole traders and landlords with turnover above £50,000. This meant many smaller sole traders were not required to comply. But from April 6, 2026, HMRC is lowering this threshold to £30,000 of annual turnover, which will bring many more sole traders into scope. This change is designed to accelerate digital tax reporting adoption and improve HMRC’s data accuracy.

To put this into perspective, if your business's annual turnover exceeds £30,000 in the tax year 2025-26, you will be required to join Making Tax Digital from April 2026. This applies regardless of your business type, whether you are a sole trader, freelancer, or self-employed consultant.

• Sole traders with turnover above £30,000 in 2025-26 must comply from April 2026.
• Those below £30,000 turnover remain exempt but can voluntarily join MTD.
• Existing MTD users with turnover above £50,000 continue under current rules.
• Landlords and other self-employed individuals earning above the threshold are also included.

What Does Quarterly Reporting Involve?

Under MTD for Income Tax, sole traders must submit quarterly updates of their business income and expenses through approved digital software. These updates replace the traditional annual Self Assessment tax return in terms of income and expense declaration, although the full annual return still needs to be filed to reconcile all income sources.

Each quarter, you will report your income, allowable expenses, and other relevant figures electronically to HMRC. This means staying on top of your bookkeeping throughout the year rather than leaving it all until the tax return deadline. The quarters align with the UK tax year, splitting it into four periods: April-June, July-September, October-December, and January-March.

• Submit quarterly updates via MTD-compatible software.
• Include income, allowable expenses, and balancing adjustments.
• Keep digital records supporting your submissions.
• Continue to file an annual Self Assessment to finalise your tax.

HMRC will use the quarterly updates to calculate your estimated tax liability and provide you with an up-to-date view of what you owe, allowing you to budget and pay in a more manageable way. However, the final tax bill is confirmed after the year-end return.

The Software You’ll Need to Comply

One of the biggest changes for sole traders under MTD is the requirement to use digital software that is compatible with HMRC’s systems. This means manual spreadsheets or paper records alone won’t be enough. You’ll need to record your income and expenses digitally and submit quarterly updates through software that can connect directly to HMRC.

HMRC maintains an official list of MTD-compatible software products suitable for sole traders, ranging from free mobile apps to advanced accounting platforms. Popular options include QuickBooks, Xero, FreeAgent, Sage Business Cloud Accounting, and KashFlow. Even some simpler bookkeeping apps now offer MTD functionality.

Choosing the right software depends on your business needs, budget, and comfort with digital tools. Some key features to look for include automatic VAT calculations (if applicable), bank feed integration, easy expense categorisation, and simple quarterly reporting functions.

• Ensure the software is on HMRC’s MTD-compatible list.
• Look for user-friendly interfaces tailored for sole traders.
• Consider integration with your bank to streamline data entry.
• Check for mobile app availability if you prefer managing on the go.

Keep in mind that while some software providers charge monthly fees, this can be an investment that saves you hours on bookkeeping and reduces the risk of errors and penalties.

Practical Steps to Prepare for April 2026

To ensure a smooth transition to MTD quarterly reporting, start preparing well before the April 2026 deadline. Here’s a practical checklist to help you get ready:

1. Review your turnover and confirm if you’ll be in scope based on your 2025-26 income.
2. Assess your current bookkeeping methods and identify gaps in digital record-keeping.
3. Research and choose MTD-compatible software that fits your business needs.
4. Start using the software early to familiarise yourself with digital record-keeping.
5. Set up regular bookkeeping routines to keep your records accurate and up to date.
6. Plan your quarterly submission schedule and set calendar reminders.
7. Consider consulting an accountant or tax specialist to guide you through the process.
8. Keep all digital records and receipts organised and backed up securely.

By adopting these steps, you’ll reduce the risk of last-minute scrambling and potential compliance issues. Many sole traders find the transition easier when they break down the process into manageable parts and seek professional support if needed.

"“Switching to Making Tax Digital felt overwhelming at first, but once I picked the right software and set up a simple routine, I actually found it easier to keep track of my earnings and expenses. It’s made tax time less stressful and helped me understand my business finances better.” – Sarah J., Freelance Graphic Designer"

Common Challenges and How to Overcome Them

While MTD offers many benefits, sole traders can face challenges during implementation. Common issues include unfamiliarity with digital tools, concerns over data security, and fear of penalties for missing deadlines. Here’s how to tackle these challenges head-on:

• Digital Literacy: Take advantage of free HMRC webinars, tutorials, and software provider training resources to build confidence.
• Data Security: Use reputable software with strong encryption and keep your login credentials secure. Regularly back up your records.
• Time Management: Schedule fixed times monthly or quarterly for bookkeeping and submissions to avoid last-minute rushes.
• Understanding Rules: Stay informed about allowable expenses and record-keeping requirements to ensure accurate reporting.
• Professional Support: Engage an accountant or tax advisor familiar with MTD to review your records and submissions periodically.

Remember, the goal of MTD is to make your tax affairs easier in the long run. Embracing the digital approach early means you’re less likely to be caught out by changes and more likely to benefit from smoother, error-free submissions.