BizTut Team 
Last checked: 12 November 2026 against HMRC guidance on GOV.UK. Rules and dates can change, so confirm on GOV.UK before you act.
Making Tax Digital for Income Tax is the biggest change to Self Assessment in a generation. Instead of one tax return a year, sole traders and landlords above an income threshold now keep digital records, send HMRC a short update every three months and finish with a tax return filed from software.
It started on 6 April 2026 for people with more than £50,000 of self-employment and property income. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028, so many more sole traders are about to be brought in. This guide explains who has to join and when, what you actually have to do, the deadlines, the penalties and how to get ready.
Disclosure: this guide contains no affiliate links, and we don’t currently earn commission from any software mentioned. If that changes, we’ll say so here. How we review.
The short version
- Who: sole traders and landlords registered for Self Assessment whose qualifying income is over the threshold.
- When: over £50,000 from 6 April 2026; over £30,000 from 6 April 2027; over £20,000 from 6 April 2028.
- What counts: your turnover from self-employment plus your rental income, before expenses. Not your profit.
- What changes: digital records, four quarterly updates a year and a tax return sent from compatible software.
- What doesn’t change: you still pay your tax by 31 January (and 31 July if you make payments on account).
- Next key date: 31 January 2027. Your 2025 to 2026 tax return decides whether you join in April 2027.
Who has to join, and when
You must use Making Tax Digital for Income Tax if you’re a sole trader or landlord registered for Self Assessment and your qualifying income is above the threshold. HMRC checks the figure on your tax return and writes to you if you need to start, but it’s your responsibility to check even if no letter arrives.
| Qualifying income | On your tax return for | You start from | First quarterly update due |
|---|---|---|---|
| Over £50,000 | 2024 to 2025 | 6 April 2026 (already started) | 7 August 2026 |
| Over £30,000 | 2025 to 2026 | 6 April 2027 | 7 August 2027 |
| Over £20,000 | 2026 to 2027 | 6 April 2028 | 7 August 2028 |
If your qualifying income is £20,000 or less, you’re exempt and carry on with Self Assessment as normal. Partnerships don’t have to join yet; HMRC says it will set out a timeline later. Limited companies aren’t affected, because this is about Income Tax, not Corporation Tax. Weighing up the two structures? See sole trader vs limited company.
What counts as qualifying income
This is where most people get caught out. Qualifying income is your total income from self-employment and property before expenses. It’s your turnover, not your profit.
- Counts: sole trader turnover, rental income, and your share of income from jointly owned property.
- Doesn’t count: wages from a job (PAYE), dividends (including from your own company), pensions, and your share of partnership profits.
Two examples. A tradesperson with £45,000 of sales and £20,000 of costs has made £25,000 profit, but their qualifying income is £45,000, so they join in April 2027. Someone with £27,000 of freelance income and £25,000 of rent has qualifying income of £52,000, so they should already be using it.
If you only traded for part of the year, HMRC scales your income up to a full year. Six months of trading at £18,000 is treated as £36,000.
What you actually have to do
1. Keep digital records
Every sale and every business expense needs a digital record showing the amount, the date and the category. The categories are the same ones used on the Self Assessment return. In practice, software with a bank feed does most of this for you. Paper-only records are no longer enough.
2. Send a quarterly update
Every three months your software sends HMRC the totals of your income and expenses for each category. It isn’t a tax return: there are no adjustments to make and you don’t pay anything when you send it. Each update covers the tax year so far, so if you spot a mistake you fix your records and the next update carries the correction.
You send an update for each business. If you’re a sole trader and a landlord, that’s two sets a quarter. You must still send one even if you had no income or expenses in the period.
3. Submit your tax return from software
After the tax year ends, you make any adjustments, claim allowances and reliefs, add your other income (such as savings interest or dividends) and submit your return through compatible software. The deadline is still 31 January. You can’t use HMRC’s own online Self Assessment form once you’re in Making Tax Digital.
Deadlines for your diary
The four deadlines are the same every year: 7 August, 7 November, 7 February and 7 May.
| Update | Covers (standard periods) | Deadline |
|---|---|---|
| First | 6 April to 5 July | 7 August |
| Second | 6 April to 5 October | 7 November |
| Third | 6 April to 5 January | 7 February |
| Fourth | 6 April to 5 April | 7 May |
| Tax return and payment | The whole tax year | 31 January after the tax year ends |
If you’d rather work to month ends, you can choose calendar update periods in your software (1 April to 30 June, and so on). The deadlines stay the same. You have to choose before you send your first update of the tax year, and you can’t switch back until the next one.
For anyone who started in April 2026, the next dates are 7 February 2027 and 7 May 2027 for the third and fourth updates, then 31 January 2028 for the 2026 to 2027 tax return.
Software: what you need
HMRC doesn’t provide software, so you need a product that’s compatible with Making Tax Digital for Income Tax. You have two routes:
- All-in-one accounting software that keeps your records, sends the quarterly updates and files your return. This is the simplest route for most sole traders, and several options are free or under £10 a month.
- A spreadsheet plus bridging software. You can keep your records in a spreadsheet, but you need bridging software that links to it to send your updates and return.
Check that whatever you choose can also handle your other income and submit the final return, not only the quarterly updates. HMRC’s software finder on GOV.UK lists compatible products.
We’ve compared six options, including three free ones, in our guide to the best accounting software for UK sole traders. If you’re choosing between the big three, see Xero vs QuickBooks vs FreeAgent.
Penalties: what happens if you’re late
Making Tax Digital comes with HMRC’s points-based penalty system.
- Late quarterly updates in 2026 to 2027: HMRC has said it will not apply penalty points for late quarterly updates in this first year. You still have to send all four before you can submit your tax return.
- From 2027 to 2028: each late quarterly update or tax return earns one penalty point. At four points you get a £200 penalty, and another £200 for each late submission after that.
- Late tax return: the first-year relief doesn’t cover the return itself. A late 2026 to 2027 return, due 31 January 2028, earns a point.
- Late payment: there’s no penalty if you pay within 15 days of the due date (30 days in your first year under the new system). After that the penalty is a percentage of what you owe, and it grows the longer the tax is unpaid. On HMRC’s published rates that’s 3% of what’s outstanding at day 15, a further 3% at day 30, then 10% a year from day 31. Interest is charged from the first day you’re late.
If you can’t pay on time, contact HMRC early. Penalties are paused if you agree a payment plan and keep to it.
Exemptions
Some exemptions are automatic and others you have to apply for.
- Automatic: qualifying income of £20,000 or less; no National Insurance number; trustees and personal representatives; and some specific groups, such as people with a power of attorney acting for them.
- Temporary: some groups are deferred until at least April 2027 (for example foster carers using qualifying care relief, and people claiming averaging relief), and others for longer (for example people who receive Blind Person’s Allowance).
- Digitally excluded (apply to HMRC): you can apply if it isn’t reasonable for you to use software because of your age, a health condition or disability, your religious beliefs, or because you can’t get internet access where you live or work.
HMRC won’t accept “I’ve always filed on paper”, “I’m not familiar with accounting software” or “it costs extra time and money” as reasons on their own. If you’re exempt, you still send a Self Assessment return in the usual way.
How to get ready: 6 steps
- Work out your qualifying income. Add your sole trader turnover and any rental income from your latest tax return, before expenses.
- Find your start date in the table above. GOV.UK also has a short tool to check if and when you need to start.
- Choose your software and move your records into it. Starting a few months early gives you time to get used to it.
- Open a separate business bank account if you don’t have one. A clean bank feed makes digital records far easier.
- Sign up. You need to be registered for Self Assessment and to have sent a tax return in the last two years. You can sign up yourself on GOV.UK, or your accountant can do it for you. Then authorise your software to connect to HMRC.
- Set quarterly reminders for 7 August, 7 November, 7 February and 7 May, and spend ten minutes a week keeping your records up to date.
Earning over £30,000? File your 2025 to 2026 tax return by 31 January 2027 as usual, then aim to have your software set up before 6 April 2027.
Over £50,000 and not started? You can still sign up. Do it now, bring your records up to date from 6 April 2026 and send the updates you’ve missed. They have to be in before you can file your return.
Frequently asked questions
Is the threshold based on profit or turnover?
Turnover. Qualifying income is your gross income from self-employment and property, before any expenses are taken off.
I have a job and a side business. Does my salary count?
No. Only self-employment and property income count towards the threshold. If your side business turns over £15,000 and your salary is £40,000, your qualifying income is £15,000 and you’re exempt.
Do I pay tax every quarter?
No. Quarterly updates are information only. Payment dates haven’t changed: 31 January, plus 31 July if you make payments on account.
Can I still use a spreadsheet?
Yes, as long as you also use bridging software that links your spreadsheet to HMRC.
Can my accountant do it for me?
Yes. An accountant or bookkeeper can sign you up, send your quarterly updates and file your return. You’re still responsible for keeping records and giving them the information in time.
What if my income drops below the threshold?
Once you’re in, you generally stay in. You can opt out if your qualifying income stays below the threshold for three tax years in a row, or if your self-employment and property income stops altogether.
I’m VAT registered. Is this the same thing?
No. Making Tax Digital for VAT is a separate scheme that already applies to all VAT-registered businesses. If you’re VAT registered and over the income threshold, you’ll do both, and most accounting software handles the two together.
Next steps
Choose your software with our best accounting software for UK sole traders guide, read how to set up business accounting, or browse all our finance and operations guides.
Just starting out? Get our free UK Startup Toolkit: a 40-step startup checklist, a startup costs calculator and 50 AI prompts, plus one practical tip every Monday.
This guide is general information, not tax or financial advice. Check GOV.UK or speak to an accountant about your situation. Sources: HMRC guidance on GOV.UK, including “Find out if and when you need to use Making Tax Digital for Income Tax”, “Use Making Tax Digital for Income Tax”, “Work out your qualifying income” and “Find out if you can get an exemption”, checked 12 November 2026.
