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Making Tax Digital for Sole Traders

What Sole Traders Need to Know for MTD

Find out what Making Tax Digital means for sole traders. Learn when MTD applies, how to comply, and what steps to take as a sole trader business owner.

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If you’re a self-employed individual, Making Tax Digital (MTD) will soon change the way you report your income to HMRC. Sole traders earning over a certain threshold will need to maintain digital records and submit updates quarterly replacing the traditional once-a-year tax return.

This guide breaks down how Making Tax Digital for sole traders works, when it starts, and what you need to do to prepare.

Who Does MTD Apply to?

HMRC is phasing in Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) to gradually bring millions of sole traders into the digital tax system. Whether you’re affected depends on your level of business income:

Start DateWho It Affects
April 2026Sole traders with annual business income over £50,000
April 2027Sole traders with annual business income over £30,000

If your total gross income from self-employment is below £30,000, you are currently outside the mandate. However, HMRC has confirmed that the scope of MTD could widen in the future, so even smaller sole traders should prepare early by moving to digital record-keeping.

At Accounting Wise, we recommend getting ahead of the deadlines now. Transitioning early means you’ll avoid a last-minute scramble, spread the learning curve over time, and benefit immediately from more accurate, up-to-date financial information.

What Will You Need to Do Under MTD?

If you’re a sole trader, Making Tax Digital will fundamentally change the way you keep records and report to HMRC. Instead of one annual Self Assessment return, you’ll be required to maintain digital records and send regular updates throughout the year. Specifically, you must:

  • Keep digital records – all income and expenses must be recorded in MTD-compatible software (paper records and spreadsheets alone will no longer meet HMRC’s requirements).
  • Submit quarterly updates – every three months, you’ll need to send HMRC a summary of your income and expenses using approved digital software.
  • File an End of Period Statement (EOPS) – after your accounting year ends, you’ll finalise your figures, including any adjustments or reliefs.
  • Complete a Final Declaration – this replaces the traditional Self Assessment tax return and confirms your total tax position across all sources of income.

All of these steps must be carried out through HMRC-recognised software. Manual online submissions and paper returns will no longer be accepted once MTD applies to you.

At Accounting Wise, we make sure you’re set up with the right tools, supported through each quarterly submission, and fully compliant with HMRC’s rules so you can focus on running your business, not worrying about tax admin.

What Software Do Sole Traders Need?

To comply with Making Tax Digital, sole traders must use MTD-compatible software that connects directly with HMRC. The right software will allow you to:

  • Record and categorise income and expenses in real time.
  • Generate and submit quarterly updates without manual data entry.
  • File your End of Period Statement (EOPS) and Final Declaration digitally, ensuring HMRC receives everything on time.

Popular Software Options for Sole Traders

There are several trusted solutions designed for self-employed businesses:

  • FreeAgent – simple, intuitive, and well-suited to freelancers and small service businesses.
  • QuickBooks Self-Employed – widely used, with strong mobile features for on-the-go record-keeping.
  • Xero – scalable and flexible, ideal if you plan to grow or manage multiple income streams.
  • The Balance App – our recommended tool for UK sole traders, designed to keep you MTD-compliant with minimal fuss while offering real-time insights into your finances.

What About Bridging Software?

For those still using spreadsheets, bridging software can connect your records to HMRC’s systems. However, this is usually a short-term fix. HMRC’s long-term direction is clear: cloud-based accounting software is the most efficient, reliable, and future-proof way to meet your MTD obligations.

At Accounting Wise, we’ll help you choose, set up, and train on the software that best fits your business making the transition smooth and stress-free.

Expert Accounting for Sole Traders

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MTD Quick Links

What is Making Tax Digital
Do I Need to Register for Making Tax Digital?
Making Tax Digital Timeline and Rollout
How to Sign Up for Making Tax Digital
Making Tax Digital Deadlines and Dates
Making Tax Digital for VAT
MTD Income Tax (MTD for ITSA)
Making Tax Digital for Corporation Tax
Making Tax Digital Exemptions
Common MTD Mistakes and Avoiding Them
Making Tax Digital for Partnerships
Making Tax Digital for Limited Companies
Making Tax Digital for Sole Traders
Making Tax Digital for Landlords
Making Tax Digital Compliant Software
Making Tax Digital Bridging Software
How Accountants Can Help with MTD

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MTD Deadlines for Sole Traders

Once MTD for Income Tax applies to you (from April 2026 if you earn over £50,000, or April 2027 if you earn over £30,000), you’ll need to follow HMRC’s strict quarterly reporting cycle.

Period CoveredUpdate Deadline
6 April – 5 July5 August
6 July – 5 October5 November
6 October – 5 January5 February
6 January – 5 April5 May

After your accounting year ends, you’ll also need to:

  • Submit your End of Period Statement (EOPS).
  • File your Final Declaration (replacing the Self-Assessment tax return) by 31 January following the tax year.

This means you’ll be sending HMRC five submissions per year, rather than just one.

What Happens If You Don’t Comply?

Failing to meet MTD requirements can have serious consequences for sole traders:

  • Penalties under HMRC’s points-based system – repeated late submissions build up points, eventually triggering fines.
  • Delayed tax calculations and payments – missing updates can result in uncertainty around your tax position and unexpected bills.
  • Increased HMRC scrutiny – non-compliance raises red flags and can lead to audits or additional compliance checks.

By working with Accounting Wise, you’ll have expert support to manage deadlines, avoid penalties, and keep your tax affairs running smoothly.

Can Sole Traders Be Exempt from MTD?

Yes while most sole traders will be required to comply, HMRC recognises that some individuals may face genuine barriers. You may qualify for an exemption if you:

  • Are digitally excluded – for example, due to age, disability, or living in an area with no reliable internet access.
  • Have religious objections – where your faith prevents you from using computers or digital technology.
  • Are experiencing temporary hardship or special circumstances – such as serious illness or other exceptional situations.

Exemptions aren’t automatic you must apply to HMRC and provide evidence to support your claim. For a step-by-step overview of the process, see our [MTD Exemptions and Deferrals Guide].

At Accounting Wise, we can advise whether you qualify and help with the application to ensure you’re fully protected.

Benefits of MTD for Sole Traders

Although MTD introduces more frequent reporting, it also offers genuine advantages for sole traders who embrace digital accounting. Key benefits include:

  • Better organisation and visibility – real-time tracking of your income and expenses gives you a clear picture of your finances throughout the year.
  • Fewer errors and missed deductions – digital records reduce mistakes and help ensure you claim every allowable expense.
  • Less last-minute stress – no more scrambling at the end of January to pull together a year’s worth of paperwork.
  • Access to smarter financial tools – cloud software offers automation, dashboards, and insights that help you make better business decisions.

With the right setup, MTD isn’t just about compliance it can become a valuable tool for running your business more efficiently and profitably.

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How Accounting Wise Supports Sole Traders

At Accounting Wise, we specialise in helping UK sole traders transition smoothly into the world of digital tax filing. Our tailored services are designed to remove the stress and complexity of Making Tax Digital, so you can focus on running your business.

Our support includes:

  • Software setup and training – we’ll help you choose the right MTD-compatible software and support you how to use it with confidence.
  • Digital record migration – we’ll securely transfer your existing records into your new system, ensuring nothing is lost or overlooked.
  • Quarterly update filing and monitoring – we’ll handle your submissions on time, every time, while keeping you informed.
  • Full end-of-year support – from your End of Period Statement to your Final Declaration, we make sure everything is accurate and HMRC-compliant.

Whether you’re a freelancer, contractor, or small business owner, we’ll make MTD work for you simple, efficient, and stress-free.

Get Sole Trader Ready for MTD Today

MTD for sole traders is coming fast. Preparing early means:

  • More time to learn the systems.
  • No risk of last-minute penalties.
  • Ongoing support from trusted experts.

Don’t wait until the deadline is upon you. Get in touch with Accounting Wise today and let us make you MTD-ready the easy way.

Need help with your accounts as Sole Trader? Contact Accounting Wise Today!

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Making Tax Digital for Sole Trader FAQs

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Yes but only if your income meets the threshold. From April 2026, sole traders with annual business or property income over £50,000 must comply with MTD for Income Tax Self Assessment (ITSA). From April 2027, the threshold will extend to those earning between £30,000 and £50,000. If you earn less than £30,000, MTD does not currently apply.

MTD means that instead of filing one annual Self Assessment tax return, sole traders must:

  • Keep digital business records throughout the year
  • Submit quarterly updates of income and expenses to HMRC using MTD-compatible software
  • Submit a final “end of period statement” (EOPS) to confirm totals
  • Complete a final declaration (replacing the annual tax return)

When does MTD for Income Tax start for sole traders?

  • April 2026 – if your income is over £50,000
  • April 2027 – if your income is between £30,000 and £50,000

The government has not yet set a date for those earning under £30,000.

You must use HMRC-recognised MTD-compatible software. Popular options include Xero, QuickBooks, Sage, FreeAgent, and The Balance App. These tools allow you to keep digital records, link to your bank account, and submit quarterly updates directly to HMRC.

Yes, but only with “bridging software” that links your spreadsheets to HMRC. This approach can be clunky and prone to error. Most sole traders find it easier to switch to full MTD-compliant software for smoother record-keeping and submissions.

If you’re required to join MTD and don’t comply, you may face:

  • Penalties for late or missed submissions
  • Difficulty filing returns (as HMRC will only accept MTD-compliant filings)
  • Risk of errors or compliance checks

To avoid this, it’s best to start preparing well before the deadline.

You can get ready by:

  • Moving your records into digital accounting software
  • Getting familiar with quarterly reporting
  • Speaking to an accountant to set up the right system
    Starting early means you’ll be confident and ready by the time MTD rules apply to you.

At Accounting Wise, we help sole traders transition smoothly to MTD. We’ll recommend the best software for your needs, migrate your records, train you on using the system, and even handle your submissions if you prefer. Our goal is to make MTD stress-free so you can focus on running your business.

Switching to us for accounting services is easy

1 Choose Your Package

Select the accounting services that best suit your needs. Choose from our ready-made packages or build your own to see exactly how much you’ll be paying each month.

2 Sign up with Us

Once you’ve chosen your service level, just send over a few details using our quick sign-up form or give us a call to get started.

3 You’re ready to go

That’s it! We’ll get your accounting services set up, contact your previous accountant if needed, and begin the authorisation process with HMRC.

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Accounting Wise is a trading style of Accounting Wise Ltd, a limited company registered in England under company number 09365202. Our registered office is: The Carriages, Station Road, Ware, SG12 9PL UK.

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