MTD for sole traders: what changes and what it costs

If you’re self-employed, Making Tax Digital for Income Tax is the biggest change to your tax admin in a generation. Instead of one Self Assessment return a year, you’ll keep digital records and send HMRC an update every quarter through recognised software. Here’s what actually changes, when it hits you, and the cheapest way through it.

When it starts for you

MTD is phased in by qualifying income — your gross turnover before expenses, not your profit. That distinction catches people out: a sole trader turning over £55,000 with £30,000 of costs is in the first cohort, even though their taxable profit is £25,000.

• Over £50,000 → mandated from 6 April 2026.
• Over £30,000 → from 6 April 2027.
• Over £20,000 → from 6 April 2028.
• £20,000 or less → no confirmed date yet.

If you also rent out property, the two are added together — see the combined-income guide. Work out your own date with the calculator.

What actually changes

1. Digital records, not a shoebox

You must keep your income and expenses in digital form as you go. A spreadsheet still counts — but only if it’s digitally linked to bridging software. Retyping totals into a portal by hand isn’t compliant.

2. Four updates a year, then a final declaration

You send a cumulative quarterly update by 7 August, 7 November, 7 February and 7 May, then a final declaration by the following 31 January that replaces your old Self Assessment return. Your tax payment dates don’t change — only the reporting.

3. One set per income source

Quarterly updates are per source. A sole trade plus a rental property means two sets of updates, which is why a tool covering both keeps it to one login.

What it costs — and how to pay nothing

Software for a straightforward sole trader runs roughly £4.50–£12 a month, and there are genuinely free routes:

• Free tiers: RentalBux is free for one business until March 2028 and covers self-employment; Zoho Books has a free tier under £35k turnover.
• Free with your bank: FreeAgent is free with a NatWest, RBS or Mettle account (note: a separate account is needed if you also have property income). Tide, Monzo and Starling bundle MTD tools.
• Bridging software from about £30 a year if you want to keep your spreadsheet.
• HMRC’s own free tool for a single simple income source.

See the sole-trader software guide for the full comparison.

What to do now

• Check your latest Self Assessment turnover figure — that’s roughly what HMRC will test.
• Start keeping digital records now, even while still filing annually. It makes the switch trivial.
• Separate business banking (or at least clearly separable transactions).
• Pick software before your April, not the week before your first deadline.

General information, not tax advice — confirm your position on GOV.UK.