MTD for sole traders: how Making Tax Digital for Income Tax works if you're self-employed

Sole traders must use Making Tax Digital (MTD) for Income Tax if their qualifying income, which is self-employed turnover plus any property income before expenses, is over £50,000 on their 2024-25 tax return. That has applied since 6 April 2026, and the threshold drops to £30,000 from April 2027 and £20,000 from April 2028.

If you're in, you keep digital records of your business income and expenses, send a quarterly update to HMRC through compatible software, and submit your tax return through that software. This guide covers what that means if you're self-employed: how turnover is counted, what to record, what goes in each quarterly update, and how it works with a job, more than one business or the Construction Industry Scheme (CIS).

Key facts for sole traders

Does MTD for Income Tax apply to me as a sole trader?

It applies if you're self-employed as a sole trader, registered for Self Assessment, your qualifying income is over the threshold, and you aren't exempt. HMRC sets out the thresholds and dates in Find out if and when you need to use Making Tax Digital for Income Tax.

HMRC checks your Self Assessment return and writes to you if you need to join. HMRC says that even if you don't get a letter, you must still check your qualifying income yourself and sign up.

Exemptions, the "I have an accountant" question and HMRC's automatic sign-up letters are covered in Do I need MTD for Income Tax?, so this guide sticks to the parts that are specific to the self-employed. To check your own position in a minute, use the MTD eligibility checker.

If you're in a business partnership rather than trading on your own, HMRC's exemptions guidance says partnerships don't need to use MTD for Income Tax yet. If you run your business through a limited company, or you're not sure how your business is set up for tax, speak to an accountant before you rely on this guide.

How sole traders work out qualifying income

Qualifying income is your total income from self-employment and property before expenses, based on the tax return for the earlier year. For a sole trader, that's your sales, takings and fees, not your profit after costs. HMRC's qualifying income guidance gives this example:

• £27,000 from self-employment income
• £25,000 from rental income

That's qualifying income of £52,000, which is over £50,000.

A job and a side business

PAYE employment income doesn't count towards qualifying income. Nor do your share of profit as an individual partner in a partnership, dividends (including from your own company), the State Pension or private pensions. So if you earn a salary and run a small business on the side, only the side business's turnover (plus any property income) is measured against the threshold. You still report the other income on your tax return.

More than one business

If you have more than one self-employed business, HMRC says your qualifying income is the total from all your self-employment and property income sources, so the turnover from each business is added together. You still keep separate records for each one (see below).

Other points that affect sole traders

These come from the same HMRC page:

• New businesses. If you only traded for part of the year, HMRC annualises your income where it has the information. For example, it doubles six months of turnover.
• Closing one business. If one business stopped but you still have other self-employment or property income, the income from the closed business still counts for that year.
• Stopping altogether. If all your self-employment and property income stopped before 6 April 2026, you don't need MTD for Income Tax. HMRC says you should tell it, otherwise it may sign you up based on the information it holds.
• VAT-registered on the cash basis. You can choose whether to include VAT in your business income. If you include it, it counts towards qualifying income.
• Basis period reform. Transition profits from earlier years don't count towards qualifying income.

Once you're using MTD for Income Tax, HMRC says that if your qualifying income falls below the relevant threshold for 3 tax years in a row, you can choose to opt out.

What sole traders need to record

HMRC's digital records guidance says you need digital records of your self-employment income, including sales, takings and fees, and your expenses, such as stock, travel, office and financial costs. Each record needs the amount, the date and the category. MTD for Income Tax uses the same categories as Self Assessment.

You start from 6 April if your accounting period ends on 5 April. If it ends on 31 March, you start from 1 April and should use calendar update periods, which you choose in your software before your first quarterly update.

Separate records for each business

If you have more than one business, you keep a separate set of digital records for each one and send a separate quarterly update for each. The electrician who is also a driving instructor keeps two sets of records and sends two updates every quarter.

Simpler categories if turnover is under £90,000

If a business's turnover is under £90,000, you only need to record whether each transaction is income or an expense. If you have more than one business, each must be under £90,000 to use simpler categories for both. If turnover reaches £90,000, you'll need to categorise everything for that business in full, from the start of the tax year, before you can send your next update.

Personal and mixed-use costs

You don't have to create digital records of costs that aren't for business use. For something used partly for business, like a phone bill, HMRC lets you either:

• record just the business part, or
• record the full amount and the personal part separately, or
• record the full amount and reduce the category total before you submit your tax return

Simplified expenses and the trading allowance

If you're sure you'll use a simplified expenses scheme, you don't need digital records of the actual costs it covers, and you make the adjustment before you finalise your tax. If you're not sure, record all your expenses.

If you claimed the trading income allowance on your last return, you still need digital records of that income. You claim the allowance when you submit your tax return. HMRC's example is someone with £60,000 of rent and £1,900 from a side hustle, who has to keep digital records of both.

Retailers

If you're a retailer, HMRC says you can create one digital record of your daily gross takings instead of recording each sale.

Bank feeds

If your software pulls in transactions from your bank, HMRC says you may need to add details such as the Self Assessment category, and some transactions may need adding separately. It's your responsibility to check your records are accurate before you send an update.

Keep your originals

HMRC doesn't receive your invoices, receipts or statements, only category totals. You still need to keep original records for at least 5 years after the 31 January deadline for the tax year.

What you send each quarter

Every 3 months, your software adds up your digital records for each business into totals for each income and expense category. HMRC's quarterly updates guidance calls these "summaries, not tax returns". You don't make accounting or tax adjustments before sending one.

Updates are cumulative, so each one covers the tax year so far, from 6 April (or 1 April) to the end of the latest period. If you spot a mistake, correct the record and the fix goes into your next update. You must still send an update for a quarter with no income and no expenses.

After you send an update, you can see an estimate of your tax bill in your software or your HMRC online account.

The 2026-27 quarterly deadlines are 7 August, 7 November, 7 February and 7 May, and your tax return is due by 31 January 2028. 7 November 2026 falls on a Saturday, so aim to send your update by Friday 6 November. See every date in MTD for Income Tax deadlines 2026-27, and our step-by-step guide to the 7 November deadline, which includes a sole trader checklist.

HMRC won't give penalty points for late quarterly updates in 2026-27. You still need to send them all before you can submit your tax return, and penalty points do apply to a late tax return.

At the end of the tax year

After your fourth quarterly update, HMRC's guidance on adjusting your income explains the adjustments you might make in your software. For sole traders these can include taking out disallowable expenses, claiming the trading income allowance, claiming capital allowances on equipment, and accounting adjustments if you use traditional accounting rather than the cash basis. Cash basis is the default, and HMRC says you don't need accounting adjustments if you use it.

Then you submit your tax return through your software. HMRC adds information it already holds, such as PAYE income and pensions, and you add anything else, such as savings interest and dividends. You check the tax calculation, then declare the return is correct and complete. MTD for Income Tax doesn't change how or when you pay your tax.

If you think you're due a refund, HMRC says you can't claim it in a tax return made through MTD for Income Tax software, and points you to its guidance on requesting a refund instead.

If your accounting period doesn't line up with the tax year or 31 March, the adjustments get more involved. Speak to an accountant if that's you.

CIS subcontractors

If you work in construction as a self-employed subcontractor under CIS, MTD for Income Tax applies to you in the same way as any other sole trader, based on your qualifying income.

At year end, HMRC's tax return guidance says it adds the CIS subcontractor deductions it holds to your tax return. You must check that information before you submit.

GOV.UK's MTD for Income Tax pages don't spell out how to record CIS payments and deductions in your digital records during the year. Our guide to MTD for CIS and construction covers that, including why the bank deposit from a contractor isn't your income figure.

Choosing software as a sole trader

HMRC doesn't provide MTD software. HMRC's software guidance says your software must support all your income sources, let you send quarterly updates and submit your tax return, and work with your update periods. You can search for products in HMRC's software finder, which has a filter for products with a free version. Our guide to free MTD software compares some of them.

If you keep your records in a spreadsheet, you can carry on doing that and use bridging software to send your updates. If you also let property, our MTD for landlords guide covers the property side.

Using AATAX as a sole trader

AATAX is on HMRC's list of recognised software for MTD for Income Tax. Its HMRC listing (reference D6Q7XM) shows sole trader quarterly updates as ready now, along with foreign property and all 16 other income items on a tax return, including the Construction Industry Scheme.

The individual app is free for sole traders and landlords. There's no subscription and you don't need to give card details. You upload bank statements, receipts or spreadsheets (CSV or Excel .xlsx), AATAX reads the documents, and you review and confirm the records. Then you send your own quarterly updates and, after the year ends, your tax return. Before you send it, the app shows HMRC's tax calculation.

If an accountant looks after your tax, they can run MTD for Income Tax for you, and you can point them to AATAX for accountants.

Get started

AATAX's individual app is free for sole traders. Upload your statements and receipts, check the figures and send your quarterly updates and tax return yourself, with no subscription and no card details. Get started free

Sources (GOV.UK, checked 10 October 2026)

• Find out if and when you need to use Making Tax Digital for Income Tax
• Work out your qualifying income for Making Tax Digital for Income Tax
• Find out if you can get an exemption from Making Tax Digital for Income Tax
• Use Making Tax Digital for Income Tax: Create digital records
• Use Making Tax Digital for Income Tax: Send quarterly updates
• Use Making Tax Digital for Income Tax: Adjust your self-employment and property income
• Use Making Tax Digital for Income Tax: Submit your tax return
• Penalties for Making Tax Digital for Income Tax
• Choose the right software for Making Tax Digital for Income Tax
• Find software that works with Making Tax Digital for Income Tax (HMRC software finder, including AATAX's listing)

This page is general guidance, not tax advice. If you're unsure how the rules apply to you, speak to an accountant or contact HMRC.