From 6 April 2026, MTD for Income Tax for sole traders becomes a reality and it’s set to reshape how many selfemployed individuals manage their tax affairs. This article unpacks what MTD for sole traders means, who will be affected, the key deadlines, the steps you must take and how to prepare your business for the changes ahead.
What is MTD for Sole Traders?
MTD for Income Tax for sole traders is the next stage of the UK Government’s digital tax initiative. It builds on the earlier rollout of MTD for VAT and moves the focus on unincorporated businesses (sole traders) and landlords. Under this regime you will be required to:
- Keep digital records of your business income and expenses using compatible software
- Submit quarterly updates of your income and expenses to HMRC, rather than just filing an annual return
- Make a full final declaration at yearend (replacing or working alongside your Self Assessment) using compatible software
- Be ready for the transition to a more realtime tax reporting structure
The goal of MTD for sole traders is to modernise tax administration, reduce errors, give you better visibility of your tax position throughout the year and help you plan ahead.
Who Will Be Affected?
Under current government plans, the “qualifying income” thresholds determine when you must comply with MTD for sole traders. Qualifying income means your gross income (before expenses) from selfemployment and/or property income combined.
Here is the phased timetable:
- From 6 April 2026: Sole traders (and landlords) whose qualifying income exceeds £50,000 in the previous tax year will have to comply with MTD for Income Tax for sole traders.
- From 6 April 2027: The threshold falls to £30,000.
- From 6 April 2028: The threshold is £20,000.
If your business or property income is under the threshold for the relevant year, then you will not be mandated to comply in that phase, although you may choose to sign up early.
Why the Change? Benefits of MTD for Sole Traders
Though the change may feel burdensome, MTD for sole traders brings several benefits:
- Better financial control: Regular quarterly updates mean you’ll know your tax position as you go, rather than waiting for yearend.
- Reduced yearend stress: With digital records and four quarterly updates, the final declaration becomes simpler.
- Reduced error risk: Digital systems and compatible software typically mean fewer manual mistakes, less paperwork.
- Enhanced planning: Knowing your income and tax position during the year helps you plan cash flow, set aside tax, and make business decisions more confidently.
In other words, for sole traders, embracing MTD for Income Tax is a chance to streamline accounting, stay ahead of deadlines and avoid lastminute headaches.
What You Must Do: Steps to Prepare
- Check Your Status
First, check whether you are in scope for MTD for sole traders. Add together your gross income from selfemployment and property for the most recent tax year. If it exceeds the threshold for your phase (e.g., £50,000 for April 2026), you’ll need to comply.
- Choose Compatible Software
You will need to use software that is “MTDcompatible,” i.e. capable of keeping digital records, submitting quarterly updates and making final declarations. It’s not just spreadsheets unless they meet the API requirement.
- Digitise Your Records
From now, ensure all income and expense records are digital. That means invoicing software, bank feeds, receipts scanned and stored electronically, and your accounting software linked. Traditional paper-only systems will not suffice for those mandated for MTD for sole traders.
- Quarterly Updates
Once you’re in scope, you’ll submit four “income and expense” updates to HMRC during each tax year via your compatible software. These updates are cumulative (i.e., include earlier figures plus any corrections). Then you’ll submit a final declaration after yearend.
- YearEnd Final Declaration
At the end of your tax year you will still need to submit a returntype final declaration using your software. This will include other income, allowances, reliefs, and the tax you owe. Because your quarterly updates will have covered most of your business income/expenses, the final submission is more about topups and reconciliation.
- Sign Up Early if Possible
Even if you’re not yet forced to comply, signing up early for MTD for sole traders is a wise move. It gives you time to test systems, get used to software and workflows, and avoid being caught unprepared when the deadline hits.
Common Mistakes & How to Avoid Them
- Miscalculating gross income: Remember, the threshold is based on gross income from selfemployment and/or property.
- Using incompatible systems: Paper records alone won’t work once you’re mandated. Make sure your software is recognised by HMRC.
- Neglecting quarterly updates: Many are used to annual returns. Under MTD for Income Tax for sole traders, the quarterly rhythm matters.
- Too late preparation: Waiting until the deadline means you risk errors, rush and possible penalties.
- Overlooking digital exclusion rules: If you genuinely can’t use digital systems or software (for example due to location, disability, or reasonableness), you may apply for an exemption — but don’t assume this applies to you without checking.
Practical Tips for Sole Traders
- Start using accounting software now, even if you are below the threshold. It gives you a head start.
- Link bank feeds to your software.
- Set aside time each quarter to reconcile your books, update records and prepare for your quarterly update.
- Keep clear support for all entries, e.g., digital copies of invoices, receipts and proof of expenditure.
- Work with your accountant or adviser early as they can help you select software, set up processes and ensure compliance with MTD for sole traders.
- Monitor your gross income regularly. If you’re approaching the threshold (e.g. £50,000 for 2026), you’ll need to act.
Conclusion
The arrival of MTD for sole traders marks a major step in the way small businesses and selfemployed individuals report tax in the UK.
For sole traders who meet, or are likely to meet, the threshold of £50,000 (and later £30,000 and £20,000), the time to act is now. Preparing now means less stress, better financial visibility, fewer surprises and more control over your tax affairs.
Embrace the change. Choose your software, digitise your records, get your systems in place and ensure you’re ready for the quarterly rhythm. The transition to MTD for Income Tax for sole traders isn’t just a compliance obligation, it’s an opportunity to modernise your business, save time and build stronger financial foundations.
