Making Tax Digital (MTD) for Sole Traders: What You Need to Know for 2026
From April 2026, the UK’s Making Tax Digital (MTD) rules will change how sole traders manage and report their business income.
If you’re self-employed and earning over £50,000 per year, you’ll need to switch to the new system.
And if you earn £30,000–£50,000, your deadline is April 2027.
This guide explains — in plain English — what’s changing, what you need to do, and how to get ready without stressing.
What Is MTD and Why Is It Happening?
Making Tax Digital is HMRC’s long-term plan to modernise the UK tax system.
Instead of submitting one Self Assessment tax return per year, sole traders will be expected to:
keep digital financial records
use approved accounting software
send quarterly updates
submit an end-of-year finalisation report
MTD is designed to reduce errors and make the tax system more efficient — but for many small businesses it can feel overwhelming.
Who Has To Comply (and When)?
From April 2026
If you’re a sole trader and your gross income from self-employment is £50,000 or more, you must follow MTD rules.
From April 2027
If your income is £30,000–£50,000, your deadline is April 2027.
Below £30,000
HMRC has not yet confirmed a date — but the expectation is that MTD will eventually apply to all self-employed individuals.
What Will You Need To DO Under MTD?
Here’s what will change for sole traders:
1. Keep Digital Records
Spreadsheets are allowed if they connect to an approved software “bridge”, but HMRC strongly encourages cloud accounting tools like:
Xero
QuickBooks
FreeAgent
Sage Accounting
You’ll need to record income and expenses digitally — no more paper receipts or manual logs.
2. Send Quarterly Income Updates
Every three months you’ll send HMRC a digital summary of:
income
expenses
total profit/loss
This isn’t a tax bill — it’s just keeping HMRC up to date.
3. Submit an End-of-Period Statement (EOPS)
After the tax year ends, you’ll send a final statement correcting any quarterly mistakes and adding any year-end adjustments.
4. Submit a Final Declaration
This replaces your Self Assessment return.
You’ll confirm:
your total taxable income
any relevant reliefs
your final tax position
Think of it as a digital “sign off”.
What Won’t Change?
You still have until 31 January to pay any tax due.
Your personal tax account, tax bands and allowances stay the same.
You can still claim expenses and capital allowances exactly as before.
Common Questions Answered
Do I need an accountant?
Not necessarily — but it helps. MTD adds more admin, more deadlines and more updates.
Do I need to switch to cloud accounting?
Yes. HMRC requires software that can submit digital updates. Spreadsheets alone are not enough.
Will MTD make tax bills larger?
No — but it may feel like more admin because you’re reporting more frequently.
What happens if I don’t comply?
HMRC will introduce penalties for late submissions, similar to Self Assessment late filing penalties.
How To Prepare for MTD Now
Even if your deadline is 2027, it’s worth getting ahead.
1. Choose your software
Xero, QuickBooks and FreeAgent are the most user-friendly options.
2. Clean up your current records
Start the tax year digital, not messy.
3. Get used to logging expenses weekly
This builds good habits before quarterly reporting begins.
4. Schedule your quarterly reminder now
Quarterly updates will run like VAT returns — miss one, get penalties.
5. Get support early
You don’t need an accountant, but you do need a plan.
This is where Launch Startup can help.
Need Help Getting MTD-Ready?
We offer simple, affordable support for sole traders, including:
✔ Choosing the right software
✔ Setting up your bookkeeping
✔ Training you on the basics
✔ Getting your digital records ready for HMRC
✔ Optional “We do it for you” monthly support
If you want to stay compliant and avoid fines, we can help you set everything up quickly.
👉 Book a Free Discovery Call
We’ll walk you through exactly what you need to do before April 2026.