Making Tax Digital (MTD) is an initiative of government to modernize the tax system in the UK. Its goal is to make tax reporting more accurate, efficient, and easier for taxpayers.
For the self-employed, MTD means moving from traditional paper-based methods to digital record-keeping. Keep reading as we explore everything you need to know about MTD for self-employed individuals.
What is Making Tax Digital (MTD)?
Making Tax Digital (MTD) will come into effect for self-employed individuals from April 6, 2026.
For sole traders & landlords earning over £50,000, it will be mandatory to use HMRC-approved digital software to manage their tax records and submissions from this date, marking the first phase of MTD.
The second phase begins in April 2027, when those with earnings over £30,000 must also comply. Finally, starting April 2028, the threshold lowers further to include those earning above £20,000.
The Process
- Traditional filing via the HMRC website will no longer be allowed.
- Self-employed individuals must maintain digital records using HMRC-compliant software.
- Quarterly updates must be submitted to HMRC starting April 6, 2026.
- A final declaration detailing taxable income is required by January 31 each year.
MTD for VAT-Registered Sole Traders
If you are a VAT-registered self-employed person, such as a sole trader, you may already be familiar with MTD, as it has been mandatory for businesses with VAT taxable turnover over £85,000 since April 2019.
From April 2022, all VAT-registered businesses must keep digital records and submit VAT returns using MTD-compliant software.
Starting April 1, 2024, the VAT registration threshold increased to £90,000. If your taxable turnover meets or exceeds this, you will be automatically enrolled in MTD by HMRC.
MTD for Income Tax (IT) for Self-Employed: Things You Must Know
When does it start?
MTD for Income Tax (IT) will begin for sole traders and landlords as follows:
- From April 2026, for those making over £50,000 annually.
- From April 202,7 for those earning over £30,000 annually.
- From April 202,8 for those earning over £20,000 annually.
What is the deadline?
While initially scheduled to start in 2024, the implementation has been delayed to April 6, 2026, as part of the Basis Period Reform. However, there is still time to voluntarily sign up for MTD for IT to become familiar with the requirements before it becomes compulsory.
Is it mandatory for all self-employed individuals to go digital?
Yes, unless you qualify for an exemption, self-employed individuals meeting the income thresholds must sign up for MTD for IT. This includes landlords, sole traders, and other self-employed people earning above the stated limits. Those earning below the thresholds can continue filing returns using the traditional HMRC website system.
If you operate multiple businesses, the total combined income will be used to determine whether you meet the threshold for MTD.
What is the signing-up process for MTD for IT for self-employed people?
To sign up, you must use HMRC-recognized software, as once enrolled, you will no longer be allowed to file returns through the HMRC website. The sign-up process requires the following details:
- Business name
- Business start date
- Business email address
- National Insurance number
- Accounting period
- Accounting type
What should I submit for MTD for IT?
From April 6, 2026, you will need to submit two main types of reports:
- Quarterly updates showing all your business income and expenses. These updates are cumulative, so any corrections or amendments can be included throughout the year.
- A final declaration due by January 31 each year must include details of your taxable income, including interest earned from savings and investments.
Can my accountant sign up as a sole trader for MTD?
Yes. Your accountant or bookkeeper can register you for MTD and manage submissions on your behalf. Using HMRC-compliant cloud accounting software, they can submit both the quarterly updates and the final declaration, helping ease the transition to the new system.
Is MTD for IT optional for a self-employed person?
No, MTD for IT is mandatory for those above the income threshold starting April 2026. Only individuals who qualify for a digital exemption can opt out. Examples of exemptions include individuals with disabilities, elderly individuals, those living in remote areas, people without a National Insurance number, and foster carers.
Calculating Income for MTD
Understanding how to calculate your income for MTD purposes is crucial. Let’s take a simple example:
Suppose you earn £35,000 annually through self-employment. In addition, you receive £25,000 per year from rental property income. When both sources are combined, your total qualifying income is £60,000, above the £50,000 threshold.
This means that from April 6, 2026, you will be required to comply with Making Tax Digital for Income Tax (MTD for IT) and start maintaining digital records using HMRC-approved software.
MTD Software for Self-Employed: Essential Questions
All self-employed individuals, including landlords and sole traders, are required to use HMRC-compliant software for Making Tax Digital for Income Tax (MTD for IT). This software allows you to keep digital records of your income and expenses & to submit quarterly updates and a final declaration directly to HMRC every year.
In addition to tax filing features, it’s important to choose a software solution that also supports everyday administrative tasks, such as digital bookkeeping, invoice creation, and expense tracking. This will help smoothen your workflow and ensure all your financial records are organised in one secure platform.
Can I Use Spreadsheets to Make Tax Digital?
During the initial phase of MTD for VAT, bridging software allowed businesses to continue using spreadsheets while complying with digital filing requirements. However, with the rollout of MTD for Income Tax (MTD for IT), self-employed individuals will need to submit both quarterly updates and a Final Declaration, rather than a single annual return.
While technically possible, relying on spreadsheets will be far more complex due to the need to follow digital linking rules and maintain accurate, real-time records. For ease, accuracy, and compliance, it’s strongly recommended to use HMRC-approved software that can store your financial data securely and automate submissions.
Do I Need to Sign Up Separately for MTD for IT and MTD for VAT?
Yes, you do. MTD for Income Tax and MTD for VAT are separate systems, each requiring individual registration. Some self-employed individuals may only need to register for one, while others may be required to sign up for both, depending on their earnings and business type.
To ensure you’re registered correctly and fully compliant, it’s wise to consult a qualified accountant, like the experts at Cangaf Ltd, who can guide you based on your specific circumstances.
Can I Deregister from MTD for IT?
Once MTD for IT becomes mandatory in April 2026, deregistration won’t be an option if your income remains above the threshold. However, if your income later falls below the threshold and remains consistently low, you may become eligible to opt out. This will depend on HMRC’s guidelines at that time, so again, professional advice is key to navigating these changes effectively.
How Can Self-Employed Individuals Prepare for MTD for IT?
To stay ahead of the curve & ensure compliance with Making Tax Digital for Income Tax (MTD for IT), here are the key steps you should take:
- Start using HMRC-recognised software to keep digital records and submit returns.
- Sign up for MTD for IT well before the deadline of April 6, 2026.
- Stay informed about MTD deadlines and updates as they roll out.
If you’re feeling unsure about where to start or how to stay compliant, the experts at Cangaf Ltd are here to help. We can walk you through the transition so you become confident managing it yourself, or, if you’d prefer to focus on your business, we’re happy to handle your MTD obligations entirely on your behalf.
