If you’re a sole trader in the UK, you’ve probably heard about Making Tax Digital (MTD)—and if you’re unsure what it means for your business, you’re not alone. Since the rollout of Making Tax Digital for Income Tax Self Assessment (MTD ITSA) began in April 2026, thousands of sole traders have been preparing for significant changes in how they keep records and report their income to HMRC.
The good news is that becoming MTD-compliant doesn’t have to be complicated. With the right guidance, software, and support, you can make the transition smoothly while keeping your business fully compliant.
This guide explains what Making Tax Digital for sole traders means, who it applies to, what records you need to keep, and how Account Ease can help you stay ahead of the new requirements.
What Is Making Tax Digital for Income Tax (MTD ITSA)?
Making Tax Digital (MTD) is HMRC’s initiative to modernise the UK’s tax system by replacing paper records and manual tax returns with digital record-keeping and online submissions.
Under Making Tax Digital for Income Tax Self Assessment (MTD ITSA), eligible sole traders and landlords must:
- Keep digital business records.
- Use HMRC-approved accounting software.
- Submit quarterly updates to HMRC.
- Complete an End of Period Statement (EOPS).
- Submit a Final Declaration each tax year.
The aim is to improve the accuracy of tax reporting, reduce errors, and make tax administration more efficient for both businesses and HMRC.
Does MTD Apply to You? The £50,000 Income Threshold Explained
From April 2026, Making Tax Digital applies to sole traders and landlords with qualifying income exceeding £50,000 annually.
From April 2027, the threshold reduces to £30,000, meaning many more sole traders will be required to comply.
If your business income exceeds these thresholds, you’ll need to maintain digital records and submit updates through MTD-compatible software instead of relying solely on the traditional Self Assessment tax return.
Even if you don’t currently meet the threshold, preparing early will make the transition much easier when your business grows—or if you later decide to move from a sole trader setup to a limited company structure.
Key Dates for MTD for Sole Traders (2026 and 2027)
Understanding the rollout timetable is essential to avoid missing HMRC deadlines.
April 2026
Sole traders and landlords earning more than £50,000 must comply with MTD for Income Tax.
April 2027
The income threshold reduces to £30,000, bringing many additional sole traders into the scheme.
HMRC may expand Making Tax Digital further in future years, so adopting digital accounting software now can help your business stay prepared for future changes.
What Digital Records Do You Need to Keep?
Under Making Tax Digital, paper records alone are no longer sufficient for affected businesses.
You’ll need to keep accurate digital records of:
- Business income
- Business expenses
- Sales invoices
- Purchase invoices
- Bank transactions
- VAT records (where applicable)
- Other supporting financial documents
Keeping these records updated throughout the year makes quarterly submissions significantly easier while reducing the risk of reporting errors and HMRC penalties. If you’d rather not manage this yourself, our bookkeeping services can keep your records accurate and up to date all year round.
Which Software Is MTD-Compliant? (Xero, QuickBooks, FreeAgent)
To comply with Making Tax Digital, sole traders must use HMRC-recognised accounting software that allows digital record-keeping and electronic submissions.
Some of the most popular MTD-compatible software includes:
- Xero
- QuickBooks
- FreeAgent
- Sage Accounting
These platforms allow you to record income and expenses digitally, submit quarterly updates directly to HMRC, and maintain accurate financial records throughout the tax year.
Choosing the right software depends on your business size, budget, and accounting needs. At Account Ease, we help sole traders select, set up, and use the software that best suits their business while ensuring full compliance with Making Tax Digital. This applies just as much to tradesmen running their own business as it does to other self-employed professionals.
What Happens If You Don’t Comply With MTD?
Failing to comply with Making Tax Digital requirements can lead to unnecessary stress, missed deadlines, and potential HMRC penalties.
Businesses that fail to keep digital records, submit quarterly updates on time, or use compatible software may be subject to HMRC’s penalty system. Inaccurate or late submissions can also create additional administrative work and increase the risk of compliance issues.
Preparing early helps you avoid last-minute problems while ensuring your business continues to meet HMRC’s reporting requirements with confidence.
How Account Ease Helps Sole Traders Become MTD-Ready
Making Tax Digital for sole traders doesn’t have to be complicated. Account Ease provides practical support that makes the transition simple and stress-free.
Our experienced accountants help sole traders:
- Determine whether MTD applies to their business.
- Choose the right HMRC-approved accounting software.
- Set up digital bookkeeping systems.
- Maintain accurate financial records.
- Submit quarterly updates correctly and on time.
- Stay compliant with the latest HMRC requirements.
Whether you’re moving from spreadsheets or switching from another accounting system, we’ll guide you through every stage of the process and provide ongoing support whenever you need it. Take a look at our pricing and plans to find the option that best suits your business.
Get MTD-Ready Today: Speak to an Account Ease Adviser
If you’re unsure whether Making Tax Digital applies to your business, now is the perfect time to get expert advice.
Our team can review your current bookkeeping process, explain your obligations, and help you prepare for MTD with confidence. We’ll recommend the right accounting software, ensure your records meet HMRC requirements, and answer any questions you have about the transition.
Book a free 15-minute consultation with an Account Ease adviser today and find out exactly what you need to do to become MTD-ready. With the right support, you can stay compliant, avoid unnecessary penalties, and focus on growing your business while we take care of the accounting.