Making Tax Digital deadlines: What sole traders need to know

Making Tax Digital (MTD) is transforming how sole traders report income to HMRC. With phased deadlines approaching, it’s vital to understand when you’ll be affected and what you need to do to stay compliant.

This guide outlines the key dates, who needs to comply, and how to prepare for the changes.

What is Making Tax Digital?

MTD is a government initiative designed to modernise the UK tax system. It requires businesses and individuals to keep digital records and submit tax information using compatible software.

For sole traders, MTD applies to income tax and will be rolled out in stages based on annual income.

Key deadlines for sole traders

MTD for Income Tax Self Assessment (MTD for ITSA) will be introduced in phases:

• From 6 April 2026: Sole traders with gross income over £50,000 must comply.
• From 6 April 2027: The threshold lowers to £30,000.
• From 6 April 2028: It reduces again to £20,000. [MTD for IT...CCA Global]

These thresholds are based on gross income from self-employment and property, not profits. HMRC will use your 2024/25 tax return to determine if you meet the £50,000 threshold for the 2026 start date.

What does compliance involve?

If you’re required to comply with MTD, you’ll need to:

• Keep digital records of income and expenses.
• Submit quarterly updates to HMRC using MTD-compatible software.
• File a final digital tax return at the end of the tax year, including any adjustments or additional income.

What if your income changes?

If your income drops below the threshold, you may be able to exit MTD — but only after three consecutive years of lower income, based on submitted returns or quarterly updates.

Are there any exemptions?

You may be exempt from Making Tax Digital if:

• Your income is below the threshold.
• You’re digitally excluded due to age, disability, or lack of internet access.
• You’re a member of a religious group whose beliefs prevent the use of digital tools.

Exemptions must be applied for through HMRC.

What happens if you miss deadlines?

MTD introduces a points-based penalty system. Missing quarterly updates or the final submission can result in penalty points. Accumulating enough points leads to a £200 fine, with further penalties for repeated non-compliance.

MTD is a major shift for sole traders, but with the right preparation, it doesn’t have to be stressful. Understanding the deadlines and requirements now will help you stay ahead and avoid penalties.

If you’re unsure whether you’ll be affected, speak to an accountant or check your latest tax return to see if your income meets the threshold.