Tax
Making Tax Digital for Income Tax: what sole-trader tradespeople need to know
In short: if you're a self-employed tradesperson whose income from self-employment and property was over £50,000, Making Tax Digital (MTD) for Income Tax applies to you from 6 April 2026. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028. You'll keep digital records, send HMRC a short update every quarter through compatible software, and file a final return after the tax year ends.
Who it applies to, and when
MTD for Income Tax covers sole traders and landlords. It's based on your qualifying income: your total self-employment and property income before expenses (turnover, not profit). HMRC looks at your Self Assessment return for a tax year and, if you're over the threshold, you start from the following April (GOV.UK).
| Qualifying income in the tax year… | is over… | so you use MTD from… |
|---|---|---|
| 2024 to 2025 | £50,000 | 6 April 2026 |
| 2025 to 2026 | £30,000 | 6 April 2027 |
| 2026 to 2027 | £20,000 | 6 April 2028 |
Because it's based on turnover, a sole-trader electrician or plumber who bills £35,000 a year but makes £22,000 profit is still over the £30,000 threshold.
Limited companies aren't affected, because they pay Corporation Tax instead. HMRC usually writes to people who need to sign up, but it's your responsibility to check even if no letter arrives.
What changes
Digital records. You keep a record of every sale and expense in software, or in a spreadsheet connected to compatible software. A shoebox of receipts and a once-a-year session with your accountant is no longer enough.
Quarterly updates. Every three months you send HMRC a summary of your income and expenses from your software. It's a summary, not a tax return, and you don't pay anything extra each quarter. For the standard tax-year quarters, updates are due by 7 August, 7 November, 7 February and 7 May.
A final declaration. After the tax year ends, you confirm your figures, make any adjustments, and submit your final return by 31 January, which is the same deadline as Self Assessment now.
Getting your records ready
The hard part isn't the software. It's the habit of recording things as they happen. A practical routine for a trade business:
- Keep business and personal money apart. A separate business bank account makes everything else easier.
- Invoice from software, not a paper pad. Every sale is then recorded automatically.
- Photograph receipts the day you get them. Fuel, materials and tools: snap them and file them before they fade on the van dashboard.
- Connect your bank feed to your accounting software, so payments match up with invoices and bills.
- Look at the numbers monthly. If your records are up to date every month, the quarterly update takes minutes.
Choosing software
HMRC publishes a list of software that works with MTD for Income Tax. Accounting software such as Xero is commonly used by tradespeople, and many accountants will set it up for you. If you prefer spreadsheets, you'll need "bridging" software to send the figures to HMRC.
Your job management software doesn't have to file with HMRC itself. What matters is that your invoices and costs flow into your accounting software without being typed in twice.
Penalties
HMRC uses a points-based system for late submissions: each missed deadline adds a point, and a financial penalty applies once you reach the points threshold. Late payment of tax is charged separately. Check the current rules on GOV.UK, or ask your accountant, when you sign up.
Common questions
Does Making Tax Digital apply to me if I'm a sole trader electrician or plumber?
Yes, once your qualifying income is over the threshold: £50,000 for April 2026, £30,000 for April 2027 and £20,000 for April 2028. Qualifying income is your self-employment and property income before expenses.
Is the MTD threshold based on turnover or profit?
Turnover. It's your total income from self-employment and property before expenses, not your profit.
When are the MTD quarterly update deadlines?
For the standard quarters, 7 August, 7 November, 7 February and 7 May. The final declaration for the year is due by 31 January after the tax year ends.
Do limited companies need MTD for Income Tax?
No. MTD for Income Tax is for sole traders and landlords. Limited companies pay Corporation Tax, which has separate rules.
Do I have to pay tax every quarter under MTD?
No. Quarterly updates are summaries of your income and expenses. They don't change when you pay. Payment dates stay the same as Self Assessment.
Can I still use a spreadsheet?
Yes, as long as you use bridging software to send your quarterly updates to HMRC from it.
Where TradeDay fits
TradeDay isn't tax software and doesn't file with HMRC. It keeps your invoices, payments and supplier bills tidy and digital from the start, and sends invoices and payments to Xero, which you or your accountant can use for MTD. AI bill reading turns photos of supplier receipts into bills, so costs are recorded as they happen.