Making Tax Digital for Income Tax: Sole Trader Guide

Quick answer: Making Tax Digital for Income Tax requires sole traders and landlords to keep digital records and send quarterly updates to HMRC using compatible software. It started on 6 April 2026 for those with qualifying income over £50,000 in 2024-25, extends to over £30,000 from April 2027 and over £20,000 from April 2028.

Making Tax Digital for Income Tax, often shortened to MTD ITSA (Income Tax Self Assessment), is the biggest change to how self-employed people in the UK report income since Self Assessment began. If you invoice clients as a sole trader, you now need your income recorded in software, not just in a folder of PDFs. This guide explains who is in scope, how the £50,000 threshold is calculated, what you send and when, and where invoices made with our UK invoice generator fit into your digital records.

Important: This is general information, not tax or legal advice. HMRC is still refining the rules, penalties and software requirements. Check the official guidance on checking if you are eligible for Making Tax Digital for Income Tax, or speak to an accountant before relying on any date here.

What is Making Tax Digital for Income Tax?

MTD is HMRC's programme to move tax reporting online. VAT-registered businesses have already used it for VAT returns since 2019, extended to all VAT-registered businesses in April 2022. MTD for Income Tax applies the same approach to Self Assessment:

• keep digital records of business and property income and expenses;
• send quarterly updates to HMRC from MTD-compatible software;
• submit a tax return (often called the final declaration) through that software by 31 January after the tax year ends.

An earlier plan for a separate end of period statement (EOPS) was dropped, so year-end adjustments are made in the tax return itself.

Who must use MTD ITSA? The £50,000 threshold and later phases

According to GOV.UK, you must use MTD for Income Tax if you are a sole trader or landlord registered for Self Assessment, you get self-employment or property income (or both), and your qualifying income is over the threshold.

Qualifying income	Tax year assessed	Must use MTD from
Over £50,000	2024-25	6 April 2026
Over £30,000	2025-26	6 April 2027
Over £20,000	2026-27	6 April 2028

Partnerships are not covered yet. You may be exempt if you are digitally excluded, for example because of age, disability, location or religious reasons; you apply to HMRC for an exemption, and if granted you keep filing a normal Self Assessment return.

How is qualifying income worked out?

This is the part most sole traders get wrong. HMRC's guidance says qualifying income is the amount before expenses, in other words turnover, not profit. It is the total of your self-employment and property income from all sources, taken from the Self Assessment return for the relevant year.

Not included: employment income taxed through PAYE, your share of partnership profits, dividends, the State Pension and private pensions. For a jointly owned property, only your share counts.

Worked example

Priya is a freelance photographer and also lets a flat. In 2024-25 her figures were:

• Photography turnover: £27,000 (profit after expenses £16,000)
• Rental income: £25,000 (profit after expenses £9,000)
• Part-time PAYE salary: £12,000

Qualifying income = £27,000 + £25,000 = £52,000. Her PAYE salary is ignored, and her profits (£25,000 combined) are irrelevant. Because £52,000 is over £50,000, Priya must use Making Tax Digital for Income Tax from 6 April 2026, even though her taxable business profit is far lower.

Her friend Tom has £34,000 of sole trader turnover in 2025-26 and no other relevant income. He is under £50,000, so he is not in for 2026-27, but £34,000 is over £30,000, so he must start from 6 April 2027.

Quarterly updates: periods and deadlines

Each quarterly update is a summary of income and expenses for the period, generated by your software from your digital records. Under the standard periods, the deadlines for 2026-27, as published by HMRC, are:

Quarter	Period (standard)	Update due
1	6 April to 5 July 2026	7 August 2026
2	6 July to 5 October 2026	7 November 2026
3	6 October 2026 to 5 January 2027	7 February 2027
4	6 January to 5 April 2027	7 May 2027
Tax return	Whole of 2026-27	31 January 2028

You can choose calendar quarters (1 April to 30 June and so on) in your software if that suits your bookkeeping; the update deadlines stay on the 7th. Note that your 2025-26 Self Assessment return is still filed the usual way by 31 January 2027, so in your first year you deal with both systems.

MTD software: what you need

You need software that HMRC lists as compatible with Making Tax Digital for Income Tax. There are two broad types:

• Full bookkeeping software that records transactions, often with bank feeds, and submits updates.
• Bridging software that takes figures from your spreadsheet and sends them to HMRC.

HMRC publishes a software finder on GOV.UK, and some products have free tiers for simple sole trader businesses. Check that the product supports every income type you have, such as self-employment and UK property.

Digital records: what to keep, and where invoices fit

For each transaction your digital records need at least the date, the amount and the category (for example sales, or a type of expense). You can keep invoices and receipts as supporting documents, but the transaction itself must be recorded in your software or spreadsheet.

That means a PDF invoice is not, on its own, an MTD record. A practical workflow for a sole trader using our generator:

1. Create the invoice in the UK invoice generator with a unique number from a consistent sequence; our invoice numbering guide explains how.
2. Download the PDF and send it to the client.
3. Record the sale (date, invoice number, client, amount, category) in your MTD software or the spreadsheet linked to bridging software. An invoice tracker spreadsheet is a good starting point.
4. Store the PDF for at least as long as HMRC requires; see how long to keep invoices.

If you use cash basis accounting, record income when you are paid; under traditional accounting, record it when you invoice. Our guide to cash vs accrual accounting explains the difference.

MTD for Income Tax and MTD for VAT: how they fit together

If you are VAT-registered, you already file VAT returns under Making Tax Digital. MTD for Income Tax is a separate obligation with its own sign-up, its own deadlines and a different threshold test, so being compliant for one does not make you compliant for the other.

• Threshold: VAT registration is based on VAT-taxable turnover (currently £90,000 over a rolling 12 months), while MTD for Income Tax uses qualifying self-employment and property income over £50,000, £30,000 or £20,000.
• Frequency: VAT returns are usually quarterly and include payment; MTD Income Tax quarterly updates are summaries with no payment attached.
• Periods: your VAT quarters may not line up with the 6 April tax year; good software handles both.
• Records: one set of digital records can feed both, as long as each sale is captured with its VAT.

If you are VAT-registered, your invoices must also meet the VAT invoice rules covered in our VAT invoice guide.

Penalties for late quarterly updates

MTD for Income Tax uses a points-based late submission regime. Each missed submission deadline earns a point; for quarterly obligations, a £200 penalty is charged once you reach four points. Late payment penalties are separate and based on how late the tax is paid.

HMRC has said it will not issue penalty points for late quarterly updates during 2026-27, the first year for the £50,000 group. That relief does not cover the 2026-27 tax return or late payment. It has not been confirmed whether the same easing applies to those joining in 2027 or 2028, so check HMRC's current penalty guidance.

Common mistakes with MTD for Income Tax

• Using profit instead of turnover to decide whether you are in scope.
• Forgetting rental income. Self-employment and property income are added together.
• Keeping only PDFs. Invoices support your records, but each sale must be recorded digitally.
• Retyping figures into bridging software. The link from spreadsheet to submission should be digital.
• Thinking quarterly updates change payment dates. They do not.
• Leaving software until the deadline. Sign up, connect and test before your first quarter ends.

MTD for Income Tax readiness checklist

1. Add up your self-employment and property turnover for 2024-25, 2025-26 and 2026-27.
2. Work out which start date applies: April 2026, 2027 or 2028.
3. Check whether you qualify for an exemption.
4. Choose HMRC-recognised software or bridging software.
5. Sign up for MTD for Income Tax through GOV.UK and authorise your software.
6. Decide on standard or calendar quarters.
7. Record every invoice and expense digitally as you go.
8. Diary the 7 August, 7 November, 7 February, 7 May and 31 January deadlines.

Next step

Getting your invoices right is the easiest win. Each one should carry your name and address, the client's details, a unique invoice number, dates and a clear total, and VAT details if you are registered, as covered in our sole trader invoice guide. Create them for free in the UK invoice generator, then log each one in your MTD software the same day.