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Tax · HMRC · 2026

Making Tax Digital for Sole Traders and Tradespeople — What You Need to Know in 2026

Updated June 2026 · 9 min read · NicheApps

Making Tax Digital for Income Tax (MTD IT) is the biggest change to self assessment in decades. From April 2026, it’s no longer a future proposal for higher-earning sole traders — it’s live. Here’s what actually changes, who it affects, and how to get ready without the panic.

What is Making Tax Digital?

MTD IT replaces the single annual tax return with digital record-keeping kept up to date throughout the year, plus four quarterly updates sent to HMRC, followed by a final declaration after the tax year ends. The aim is to reduce errors and give both you and HMRC a clearer, more current picture of your income and expenses.

Who’s affected, and when

Your qualifying income is your gross turnover from self employment plus any gross property income — before expenses are deducted, not your profit. A plumber billing £55,000 with £15,000 of expenses has a net profit of £40,000, but is still in scope from April 2026 because the £55,000 gross figure is what counts.

What actually changes for you

• Digital records — income and expenses recorded in MTD-compatible software, not paper or a standalone spreadsheet.
• Four quarterly updates — cumulative year-to-date summaries sent to HMRC, not tax calculations.
• A final declaration — after the tax year ends, confirming the figures and finalising your tax, replacing the old annual return. Deadline stays 31 January.

Payment dates don’t change — 31 January and 31 July as before. Only the reporting cadence becomes quarterly.

Does MTD change what I can claim?

No. The wholly-and-exclusively test still applies, and simplified expenses like the 55p mileage rate are unchanged. MTD only changes how often and in what format you report — not what’s allowable.

The soft landing

For the 2026/27 tax year, HMRC has confirmed no penalty points for late quarterly updates during this first year — though late payment penalties still apply. From 2027/28, the full penalty points system kicks in: each late update adds a point, and four points trigger a £200 fine.

How to prepare, in order

1. Check your 2024/25 self assessment turnover — that figure decides whether Phase 1 applies to you.
2. Choose MTD-compatible software rather than a bare spreadsheet (bridging software exists, but it’s extra admin).
3. Start logging every job, cost and mile digitally now, even if you’re not yet over the threshold — the habit is the hard part, not the software.
4. Diarise the quarterly deadlines so they don’t creep up on you.

Why record-keeping habits matter more than the software

Apps like PlumberLog already log every job, cost and mileage entry with a date and category — exactly the structured format MTD expects. If you’ve been using it since day one, the quarterly update is a formality rather than a scramble. See our step-by-step tax return guide for where each figure currently goes on your return, and How to Track Expenses as a Self Employed Tradesperson for the habit that makes this painless.

The bottom line

MTD doesn’t change how much tax you pay — only how and when you report it. Sole traders who already keep clean digital records throughout the year will barely notice the switch. Everyone else has until their mandation date to build that habit.

This article is for general guidance only and does not constitute tax or financial advice. Always consult a qualified accountant or check gov.uk for the latest HMRC guidance.