Making Tax Digital (MTD) is transforming the way businesses and individuals manage their tax affairs in the UK. If you’re a sole trader, understanding your MTD obligations is critical to staying compliant and avoiding penalties.
This guide breaks down everything you need to know about MTD for sole traders, in plain English.
What is Making Tax Digital?
Making Tax Digital is a UK government initiative designed to make tax administration more effective, more efficient, and easier for taxpayers. It requires businesses and individuals to keep digital records and submit tax returns using HMRC-compliant software.
Does MTD Apply to Sole Traders?
Yes, it does. If you’re a sole trader with a turnover above £50,000, you are already required to comply with MTD for Income Tax Self Assessment (MTD for ITSA) from April 2026. If your turnover is above £30,000, your deadline is April 2027.
This means you must:
- Keep digital records of income and expenses
- Use compatible accounting software
- Submit quarterly updates to HMRC
- Submit a final end-of-year declaration
Key MTD Deadlines for Sole Traders
|
Turnover Threshold |
MTD for ITSA Start Date |
|
Over £50,000 |
April 2026 |
|
Between £30,000–£50,000 |
April 2027 |
|
Below £30,000 |
TBC |
⚠️ Note: Even if you’re under the £30,000 threshold, MTD will likely apply in the future, so it’s wise to prepare early.
What Are Your Obligations Under MTD?
As a sole trader under MTD, you need to:
- Maintain digital records – Spreadsheets alone won’t cut it. You’ll need MTD-compliant software.
- Submit quarterly updates – Income and expenses must be reported to HMRC every 3 months.
- Submit an End of Period Statement (EOPS) – This confirms your income and claims for reliefs.
- Submit a Final Declaration – Think of this as the new version of the annual Self Assessment return.
What Counts as MTD-Compliant Software?
To comply with MTD, you must use software that:
- Integrates with HMRC’s systems
- Keeps digital records
- Can send quarterly reports and final submissions directly
Popular options include:
- Xero
- QuickBooks
- Sage
- FreeAgent
- HMRC-recognised bridging software (for spreadsheet users)
What Happens If You Don’t Comply?
Failure to comply with MTD requirements could result in:
- Late submission penalties
- Interest charges
- Loss of goodwill with HMRC
HMRC will also be moving towards a points-based penalty system, so multiple missed deadlines could lead to financial penalties.
Benefits of Going Digital as a Sole Trader
While MTD might seem like extra admin, it also comes with some perks:
- Fewer mistakes with real-time data
- Easier tracking of business performance
- More efficient record-keeping
- Better tax planning through regular updates
How to Get Ready for MTD
- Check your turnover – Know your MTD start date.
- Choose the right software – Pick one that suits your business needs and budget.
- Start digital record-keeping now – Even before your deadline.
- Get support if needed – An accountant or tax advisor can help you get set up and stay compliant.
Final Thoughts
MTD for sole traders isn’t just a box-ticking exercise, it’s a shift in how you manage your business finances. Embracing digital tax reporting early means you’ll be ready when the deadlines hit and possibly even ahead of the game.
Need help getting MTD-ready?
We help sole traders choose the right software, set up their digital systems, and stay on top of their tax obligations. Get in touch for a free consultation.
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