Sole Traders – now’s the time to check what HMRC’s Making Tax Digital means for you

Last Updated on 6 June 2025

I’ve written many times over the last decade about HMRC’s big Making Tax Digital project – aka MTD.

Over the next few years it will mean a radical change for many sole traders.

If you’re registered as self-employed for self-assessment, this means you!

Some sole traders will need to get their heads around this from April 2025, for reasons I explain below.

You might even have received a letter from HMRC which alerts you to the fact that you might (or might not) need to engage with MTD from April 2026.

What’s going to change?

Soon sole traders will have to report invoice totals, and business cost totals every three months during the actual tax year.

To be clear this means as you go along.

This is a big change from leaving everything to the end of each tax year when you submit a tax return.

HMRC will also need sole traders to use specially authorised commercial software to do this.

You won’t be inputting the data manually for these quarterly returns, you’ll be pressing a button on the software to report information you’ve already collected – again, to be clear – as you go along.

Who’s affected?

The first group of sole traders to be in this regime will be sole traders (and landlords) with annual business turnover (ie total of what you invoice) greater than £50,000. That means £50,001 or more.

They will be reporting quarterly in the tax year that starts on 6th April 2026.

The income that counts towards this total is called ‘qualifying income’.

You can read a full definition of qualifying income here on gov.uk, but in short, it’s the total of all your invoicing, plus rental income if you are renting out a property.

It does NOT include PAYE income, even if you consider yourself a PAYE freelancer.

But 2026 is ages away!

Aha! Not really. You see HMRC will be looking at the total turnover in the tax year 2024-25. This is the year with the tax deadline of 31st January 2026.

HMRC will look at the totals for 2024-25 to work out whether you’re going to have to use the new MTD reporting system from 6th April 2026.

So it’s not really as far away as you think.

What if I invoice less than £50,001 per year?

More sole traders will be brought into this system in the following year.

So if you have qualifying income more than £30,000 in the tax year 2025-26, you’ll have to use the Making Tax Digital reporting system for the tax year that starts on 6th April 2027.

Update: 26 March 2025: In the small print of the 2025 Spring Statement sole traders with a turnover more than £20,000 will be drawn into the MTD system from 6th April 2028.

If you become a sole trader (or landlord) after 6 April 2026 you won’t have to get set up for Making Tax Digital until after you have submitted your first self-assessment tax return.

You can sign up voluntarily at any time though.

What does ‘being in the Making Tax Digital system’ actually mean?

It means using special HMRC-authorised accounting software to record invoicing (turnover) and business costs (tax-deductible expenses) in real time.

It also means pressing a button on the software at the end of each three month period (aka ‘quarter’) to report those two figures to the tax office.

So a tax return four times a year?!?!

Not quite a tax return four times a year. It’s just turnover and costs totals every three months. And these can be adjusted if you need to.

At the end of the tax year you will do a ‘Final Declaration’, which replaces what we currently call the self-assessment tax return. The deadline of the following 31st January remains unchanged for the moment.

How will I know what software to get?

There will be quite a lot of options, so ask around. See what other people find user-friendly.

If you have an accountant they may suggest software they’d like you to use.

If they suggest something a bit too accountant-y for you, push back politely and suggest something you might prefer.

There is a list of current MTD-authorised software on gov.uk. See the latest here >

Is the software free?

Ah. There might be free options, for example FreeAgent’s deal with the NatWest Mettle mobile business account.

Otherwise we’re looking at typically £200 per year or more for your software subscription.

Personally I think this is a moral problem – making people pay to pay their taxes.

But also personally, I don’t think digitisation is a bad idea in this day and age.

I have an accountant. Do I really need to get into this?

Yes. The relationship between you and your accountant will change.

For example, do you want them to do everything for you four times a year, plus the Final Declaration? They will bill you five times, no doubt, and it might not be the best arrangement anyway.

You will also need to discuss with them if they have a deal to get cheaper software.

And will they set it up and give you a log in to report the quarterly figures?

Or will you set it up and give them a log in to check the figures at the end of each year?

That latter option sounds cheaper to me.

Can I dig my heels in?

If you earn over the thresholds, you can apply for exemption. But on very limited grounds.

To quote from the HMRC guidance:

You’ve ruined my day, and I’ve broken out in a cold sweat.

Sorry. But better to get into this rather than hide under the duvet.

It’s one of those things which will eventually settle down and we’ll wonder how we ever used spreadsheets and shoeboxes.

A personal observation: I’ve been using this kind of accounting software for five years, and I can’t imagine running my business without it. I basically do record keeping and keep an eye on all the finances on the app on my phone.

Posted on 16 February 2025