Making Tax Digital for sole traders: a step-by-step guide

Checked against GOV.UK · Updated 27 October 2026

Making Tax Digital (MTD) for Income Tax applies to sole traders whose qualifying income is over the threshold: £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028. The test is turnover, meaning income before expenses, not profit. If you are in, you keep digital records, send HMRC a summary every three months and file your return through software.

Step 1: work out your qualifying income

Qualifying income is your total self-employment and property income before expenses, taken from the tax return for the year HMRC checks. Example: a plumber with £36,000 of sales and £15,000 of costs has qualifying income of £36,000, not £21,000.

• Over £50,000 in 2024 to 2025: start from 6 April 2026
• Over £30,000 in 2025 to 2026: start from 6 April 2027
• Over £20,000 in 2026 to 2027: start from 6 April 2028

If you have more than one trade, or you also let property, the turnovers are added together. PAYE wages, your share of partnership profit, dividends and pensions do not count. If you traded for less than 12 months, HMRC annualises the figure where it can: six months of trading is doubled. If you use the cash basis and include VAT in your income, that VAT counts. More detail: qualifying income explained.

Step 2: check if you are exempt

Not every sole trader has to use MTD. Qualifying income of £20,000 or less is automatically exempt, and partnerships do not need to use it yet. You can apply for an exemption if you are digitally excluded, for example because age, disability or location means you cannot reasonably use software.

HMRC will not grant an exemption just because you filed on paper before, are unfamiliar with accounting software, have few records, or because it costs time or money. See MTD exemptions, or use our free MTD checker to find your likely start date.

Step 3: choose software

HMRC does not provide software. GOV.UK says to choose it before you sign up, using HMRC's software finder, which lists products that have been through HMRC's recognition process. HMRC does not recommend any product.

You can use one all-in-one product, or keep spreadsheets and link them to bridging software. You can use separate products for different trades, but only one product for each submission. Check the software covers all your income sources and your accounting period. Free products exist for simple affairs, though they may limit things like the number of transactions.

Step 4: sign up

You sign up online with your Self Assessment sign-in details. You will need your business name as it appears on invoices, your business address, your trade, and your start date if you began in the last two tax years. HMRC says that from September 2026 it will start signing up people who need MTD for 2026 to 2027 but have not joined. Full walkthrough: how to sign up for MTD.

Step 5: keep digital records

After you authorise your software, each sale and expense needs a digital record showing the amount, the date and a category. The categories are the same as Self Assessment, such as turnover, car, van and travel expenses, and phone, stationery and other office costs. See HMRC expense categories.

If your turnover from a trade is under £90,000, you can simply mark each item as income or expense. Each trade needs its own records and its own updates. HMRC's example is someone who is both an electrician and a driving instructor.

You must still keep receipts, invoices and bank statements, and keep records for at least five years after the 31 January deadline for the year. See what records to keep.

Do I need a separate business bank account?

HMRC's MTD guidance does not require one. GOV.UK says you might be able to use a personal or business account for your business, and to check with your bank which type you can use. What matters is that your records are accurate and business transactions can be identified.

If your software reads a bank feed, you may need to add the category yourself, and some transactions may not come through in full. You are responsible for checking records before each update. More in receipts and bank accounts.

Step 6: send quarterly updates

Every three months your software totals your records by category and sends them to HMRC. Each update covers the tax year so far, and you make no tax adjustments at this point. Deadlines are 7 August, 7 November, 7 February and 7 May. You must send an update even if you earned nothing. See quarterly update deadlines.

Step 7: finish the year and file your return

After the fourth update you make year-end adjustments in your software, such as removing private use, claiming capital allowances or applying simplified expenses. HMRC adds information it already holds, such as PAYE income, then you add anything missing, like savings interest. You submit the return and pay any tax by 31 January after the tax year ends.

CIS subcontractors

HMRC says it will add Construction Industry Scheme subcontractor deductions to your MTD tax return, and you must check them before submitting. Under Self Assessment, subcontractors record their total pay before deductions as income, with the deductions entered separately.

If you pay subcontractors yourself, the self-employment categories include one for construction industry payments to subcontractors. HMRC's MTD guidance says nothing else specific about CIS.

Penalties

If you had to start in April 2026, late quarterly updates earn no penalty points in 2026 to 2027, though late returns do. After that, each missed deadline earns a point, and 4 points means a £200 penalty. See MTD penalties.

Keeping the records with Snapfile

Snapfile is a WhatsApp bookkeeping service: you send photos of receipts and invoices, PDFs or a quick text, and it records each item, sorts it into a Self Assessment expense category, tracks the tax year and quarter, logs mileage, sends deadline reminders and exports a CSV. It does not submit to HMRC, so you still need software from HMRC's finder. It is free during early access.

Common questions

Sources: GOV.UK: Making Tax Digital for Income Tax for sole traders and landlords: step by step; GOV.UK: Find out if and when you need to use Making Tax Digital for Income Tax; GOV.UK: Work out your qualifying income for Making Tax Digital for Income Tax; GOV.UK: Find out if you can get an exemption from Making Tax Digital for Income Tax; GOV.UK: Choose the right software for Making Tax Digital for Income Tax; GOV.UK: Find software that works with Making Tax Digital for Income Tax; GOV.UK: Sign up for Making Tax Digital for Income Tax; GOV.UK: Use Making Tax Digital for Income Tax: Create digital records; GOV.UK: Use Making Tax Digital for Income Tax: Send quarterly updates; GOV.UK: Use Making Tax Digital for Income Tax: Adjust your self-employment and property income; GOV.UK: Use Making Tax Digital for Income Tax: Submit your tax return; GOV.UK: Making Tax Digital for Income Tax: Quarterly update direction; GOV.UK: Business records if you're self-employed; GOV.UK: What you must do as a CIS subcontractor; GOV.UK: Penalties for Making Tax Digital for Income Tax. This is general information, not tax advice; check GOV.UK or an accountant for your situation.

Related guides

• Do I need an accountant for Making Tax Digital?
• How to sign up for Making Tax Digital for Income Tax
• Making Tax Digital for landlords: what changes and what to do
• Making Tax Digital for CIS subcontractors
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