If you're a sole trader and you've heard the phrase 'Making Tax Digital' float past without ever quite landing, you're not alone. It sounds like an IT project. What it actually is, is a change to how — and how often — you tell HMRC what you've earned.
Instead of one big Self Assessment return once a year, the direction of travel is towards keeping digital records and sending HMRC quarterly updates through compatible software, with a final declaration at the end of the year rather than a single annual form.
Who it applies to, and when
It's being phased in based on income level, with higher earners moving across first and the threshold coming down over time to bring in more sole traders and landlords. If you're below the current threshold, this isn't urgent yet — but it is coming, and the threshold has a habit of moving. The safest assumption is that it'll eventually apply to you if you're self-employed at all, and the only real question is when, not if.
Start dates and thresholds at a glance
HMRC has now set the dates plainly, so there's no need to guess. Making Tax Digital for Income Tax arrives in three phases, and each one pulls in a lower band of income than the last.
The first phase landed in April 2026, when it became mandatory for sole traders and landlords with qualifying income over £50,000 — the phase that catches established full-time businesses first. In April 2027 the threshold drops to £30,000, which is where a very large number of ordinary sole traders sit. And from 6 April 2028 it drops again to £20,000, measured on qualifying income in the 2026-27 tax year; at that level you're into part-time trades and single rental properties, not just full-time businesses.
'Qualifying income' means your total turnover from self-employment and property before expenses, not profit — a common point of confusion, since a business can be well below the VAT threshold and still be well over the MTD one. It's your gross self-employment turnover plus your gross property income combined, which means someone with a modest trade and one let can cross a threshold that neither income stream would have reached on its own.
The practical step is the same whichever of the three phases catches you: work out which date is yours, then count back a full year from it. That earlier date — not the mandation date — is when your records need to already be in the shape HMRC will expect, because the first quarterly update is due a matter of weeks after the switch, not months.
The quarterly rhythm, and the penalties for missing it
Once you're in scope, the tax year stops being one deadline and becomes five. There are four quarterly updates, each covering a period that runs from 6 April and each due on the 7th of the following month: 6 April to 5 July is due 7 August, 6 April to 5 October is due 7 November, 6 April to 5 January is due 7 February, and the full year to 5 April is due 7 May. A tax return still follows, submitted through the same software once the quarterly updates are in, and the Self Assessment deadline of 31 January is unchanged. Nothing about that alters how much tax you owe or when you pay it — it changes how often you have to have your numbers straight.
Miss a quarterly submission and HMRC doesn't reach straight for a fine — and for the 2026-27 tax year it doesn't reach for one at all, because there are no late-submission penalties for quarterly updates in the first year. From 6 April 2027 the points system starts, the same approach already used for VAT: each missed quarterly deadline earns one point, and at four points a £200 penalty lands, with a further £200 for every missed deadline after that. Points drop off automatically 24 months after the deadline that earned them, provided you stay under the threshold; once you have hit four, clearing them takes 12 months of filing everything on time plus bringing the previous 24 months' submissions up to date. It's more forgiving than the old one-off Self Assessment penalty, but points accumulate a lot faster with four deadlines a year instead of one.
What actually changes day to day
The biggest shift isn't the tax you owe — it's the admin rhythm. Instead of a scramble in January, you're keeping records as you go and submitting more regularly. For anyone already using proper bookkeeping software, this is a smaller change than it sounds. For anyone still running things off a shoebox of receipts and a spreadsheet at year-end, it's a bigger one.
Quarterly submissions also mean quarterly visibility. That sounds like extra admin, and technically it is, but it's also the upside hiding inside the requirement: you'll know how the year is actually going in April, not just find out for certain the following January. Sole traders who've been through similar shifts before often say the record-keeping habit ends up more useful than the compliance box it was originally built to tick.
The businesses this catches out won't be the ones with complicated finances. They'll be the ones with no system at all.
The software question
You'll need something HMRC-recognised to submit through — a spreadsheet alone won't cut it once you're in scope, though a spreadsheet linked to bridging software can still work for simpler affairs. The market has a wide range of options at very different price points, and most sole traders don't need anything elaborate: something that captures income and expenses as they happen, reconciles against a bank feed, and produces the quarterly summary without you having to reconstruct three months of receipts from memory.
The record-keeping rules that catch people out
The detail that trips people up isn't the software, it's the digital link requirement underneath it. Once a transaction is recorded digitally, it needs to stay digital all the way through to the submission — no printing out a spreadsheet to re-key totals by hand into different software, no manually retyping numbers between two systems that don't talk to each other. A genuine digital link (an export/import, a formula, an API connection) is fine; manual re-entry of the same figure isn't, even if the number itself is completely correct.
Quarterly updates are also cumulative by design, not four separate mini tax returns. Each submission updates the year-to-date total for each income and expense category, so a mistake in quarter one doesn't need a full quarter re-filed — it gets corrected in the running total the next time you submit. That's a friendlier system than it sounds, provided your software actually presents it that way rather than you trying to track it manually across a spreadsheet.
There is one genuine exemption worth checking rather than assuming you're stuck: HMRC will exempt anyone who is digitally excluded — where age, a health condition or a disability stops you using a computer, tablet or smartphone to keep and submit digital records, or where you are a practising member of a religious society whose beliefs are incompatible with using digital communications. It's a real route, but a narrow one, and it has to be applied for by phoning or writing to HMRC using the Self Assessment general enquiries contact details. HMRC aims to decide within 28 days. If you're granted it you still report your income in a Self Assessment return in the old way — an exemption from MTD is not an exemption from tax.
A sensible run-up, phase by phase
The gap between now and your own start date is the useful part, and it's worth using rather than waiting out. The first job is simply establishing which phase you land in — add up gross self-employment turnover and gross property income for a normal year and see which of the three thresholds it clears. If you're within a few thousand pounds of one, assume you're in scope for that phase rather than betting on a quiet year.
The second job is getting income and expenses recorded digitally as they happen, in something that could plausibly submit on your behalf later. That's the habit the whole regime rests on, and it's the bit that takes months to become automatic rather than days. Anyone who starts a full year early arrives at their first quarterly deadline with nothing to do but check and click.
The third is deciding, in advance and out loud, who is actually pressing submit four times a year — you or whoever does your books. It sounds like a detail. It's the single most common thing left unagreed, and the point at which a deadline gets missed by two people each assuming the other had it.
Nothing about Making Tax Digital changes what you owe. It changes how often you have to know.
What to actually do about it
You don't need to panic-buy software the day you read this. You do need to know roughly when your turnover will cross the relevant threshold, and get comfortable keeping digital records well before your first quarterly submission is due. Build the habit before it's compulsory, not after — the businesses that adapt calmly are the ones who started keeping better records for their own benefit long before HMRC required it of them.
If you already work with an accountant or bookkeeper, this is exactly the kind of thing worth a ten-minute conversation now rather than a fire drill later. Ask them plainly when your obligations start, what software they'd recommend for a business your size, and whether they're planning to handle the quarterly submissions themselves or expect you to. That last question in particular has a habit of being assumed rather than actually agreed.
Common questions
When does Making Tax Digital for Income Tax start for sole traders?
It started on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, and it is being phased down from there. From 6 April 2027 the threshold drops to £30,000, and from 6 April 2028 it drops again to £20,000 — that final phase is measured on your qualifying income in the 2026-27 tax year, so the figures deciding whether you are caught in 2028 are the ones you are earning now. HMRC works out which phase you land in from the income reported on the Self Assessment return for the tax year two years before mandation. If you are within a few thousand pounds of a threshold, plan on being in scope rather than betting on a quiet year.
What counts as 'qualifying income'?
Gross income from self-employment and property, added together, before any expenses or allowances are deducted. It is turnover, not profit, and that single distinction catches more people than any other part of the regime — a sole trader with £45,000 of turnover and £15,000 of costs has £30,000 of profit but £45,000 of qualifying income. It is also cumulative across income streams, so someone with a modest trade and one let can clear a threshold neither source would reach alone. Employment income, pensions and dividends are not qualifying income for this purpose. If you are near a threshold, add up gross self-employment turnover and gross rents for a normal year and work from that figure, not from what lands in your pocket.
Do I still have to file a Self Assessment tax return?
Yes. Quarterly updates do not replace the tax return — they sit in front of it. Once you are in scope you keep digital records, send four quarterly updates through compatible software, and then submit your tax return through that same software, with the deadline unchanged at 31 January after the end of the tax year. HMRC will not let you file the return until the quarterly updates are in, which is the practical reason the quarterly rhythm matters even in a year with no penalties attached to it. Payment dates are unchanged too: the balancing payment on 31 January, and payments on account on 31 January and 31 July where they apply. Nothing here alters how much tax you owe.
Can I keep using a spreadsheet?
Yes, but not on its own — it has to connect to HMRC-recognised bridging software that does the submitting. What the rules actually require is a digital link: once a figure is recorded digitally it must stay digital all the way to submission, so exporting, importing, formulas and API connections are all fine, while printing a total and re-keying it into another system is not, even when the number is correct. The other point worth knowing is that quarterly updates are cumulative rather than four separate returns. Each one restates the year-to-date total for every income and expense category, so a mistake in quarter one is corrected in the running total next time rather than needing a re-file.
What happens if I miss a quarterly update?
For the 2026-27 tax year, nothing — HMRC is not charging late-submission penalties for quarterly updates in the first year, though you still have to send them before you can file your return. From 6 April 2027 the points system starts, the same one already used for VAT. Each missed quarterly deadline earns one penalty point; at four points a £200 penalty is charged, and a further £200 for every missed deadline after that. Points fall away automatically 24 months after the deadline that earned them if you stay below the threshold. Once you have hit four points, clearing them takes 12 months of filing everything on time plus bringing the previous 24 months of submissions up to date.
Is there any way to be exempt?
Yes, if you are digitally excluded — but it is narrow and it has to be applied for. HMRC's test is that age, a health condition or a disability stops you using a computer, tablet or smartphone to keep digital records or submit them, or that you are a practising member of a religious society whose beliefs are incompatible with using digital communications. You apply by phoning or writing to HMRC using the Self Assessment general enquiries contact details, explaining how you file now, why you are digitally excluded, and whether an agent acts for you. HMRC aims to decide within 28 days. An exemption removes the MTD obligation only: you still report your income and gains in a Self Assessment return.
