Making Tax Digital — What Freelancers and Sole Traders Need to Know
Making Tax Digital for Income Tax is one of the biggest changes to UK tax administration in a generation. From April 2026, self-employed people and landlords with income above £50,000 must keep digital records and submit quarterly updates to HMRC.
Estimate your self-assessment tax bill before MTD kicks in.
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Making Tax Digital (MTD) is HMRC's programme to move UK tax reporting online. The goal is to reduce errors, close the tax gap and give taxpayers a clearer real-time picture of their tax position.
MTD has rolled out in stages. MTD for VAT has applied to all VAT-registered businesses since April 2022 — if you are VAT registered, you already keep digital records and file VAT returns through MTD-compatible software.
MTD for Income Tax Self Assessment (ITSA) is the next phase. It replaces the annual Self Assessment return for affected sole traders and landlords with quarterly digital updates and a final declaration. The rollout is phased by income threshold over three years from April 2026.
Who is affected and when
MTD for Income Tax applies to sole traders and landlords with qualifying income above the threshold. It does not apply to limited companies — company accounts and Corporation Tax returns are separate.
| From | Qualifying income threshold |
|---|---|
| April 2026 | Above £50,000 |
| April 2027 | Above £30,000 |
| April 2028 | Above £20,000 |
Qualifying income is your total income from self-employment and UK property — not profit after expenses. If you have multiple sole trader businesses or rental properties, the thresholds apply to your combined qualifying income.
Limited company directors are not affected. MTD for Income Tax applies to sole traders and landlords only. If you trade through a limited company, your company tax obligations are unchanged. Directors who also have sole trader income or rental property may be affected for that income.
What MTD for Income Tax actually requires
Under MTD you must complete four types of submission each tax year, in addition to keeping digital records throughout.
Keep digital records
All income and expenses must be recorded digitally — in MTD-compatible software or a spreadsheet connected via bridging software. Paper records and manual end-of-year calculations are no longer sufficient for affected taxpayers.
Submit quarterly updates
You must send HMRC a summary of your income and allowable expenses for each quarter. These are not tax returns — they are cumulative updates that build a running picture of your tax year. Deadlines are one calendar month after each quarter ends:
- Quarter 1 (6 April – 5 July): due 7 August
- Quarter 2 (6 July – 5 October): due 7 November
- Quarter 3 (6 October – 5 January): due 7 February
- Quarter 4 (6 January – 5 April): due 7 May
Submit an end of period statement
After the final quarterly update, you submit an End of Period Statement (EOPS) for each business or property source. This confirms that all income and expenses for that source have been reported and includes any accounting adjustments — for example, capital allowances or basis period adjustments.
Submit a final declaration
The Final Declaration replaces the main Self Assessment tax return. It pulls together all your quarterly updates and EOPS submissions, adds any other income (employment, savings, dividends) and calculates your final tax liability. The deadline remains 31 January following the end of the tax year.
What software do you need?
You need software that can connect directly to HMRC's systems. Popular MTD-compatible options for freelancers and sole traders include:
- QuickBooks — widely used, strong bank feed integration and expense categorisation. Good for sole traders who want an all-in-one solution.
- Xero — popular with accountants, clean interface and good reporting. Slightly more expensive but well supported.
- FreeAgent — built specifically for freelancers and small businesses. Includes invoicing, expenses and MTD filing in one package.
- FreshBooks — strong on invoicing and time tracking. Good for service-based freelancers who bill by the project or hour.
- Sage — established accounting software with MTD support. More traditional interface, widely used by accountants.
Check the HMRC list of compatible software before subscribing — not all products support MTD for Income Tax yet, even if they already handle MTD for VAT.
Spreadsheet users: You can continue using a spreadsheet if you connect it to HMRC through bridging software. Bridging software takes your spreadsheet data and submits it in the correct format. It is lower cost than full accounting software but requires more manual work each quarter.
How MTD changes your tax year
Under the old system you filed one Self Assessment return by 31 January. Under MTD you have five submission deadlines spread across the year. For the 2026/27 tax year:
| Deadline | What to submit |
|---|---|
| 7 August 2026 | Quarter 1 update (6 Apr – 5 Jul 2026) |
| 7 November 2026 | Quarter 2 update (6 Jul – 5 Oct 2026) |
| 7 February 2027 | Quarter 3 update (6 Oct 2026 – 5 Jan 2027) |
| 7 May 2027 | Quarter 4 update + End of Period Statement (6 Jan – 5 Apr 2027) |
| 31 January 2028 | Final Declaration (replaces Self Assessment return) |
Quarterly updates do not require payment — they are informational. Tax payment deadlines are unchanged: balancing payment and first payment on account remain due by 31 January following the tax year.
What stays the same
- Tax rates and allowances — MTD changes how you report, not how much tax you pay. Income tax rates, National Insurance and allowable expenses are unchanged.
- Payment deadline — tax is still due by 31 January following the tax year end, with payments on account in January and July where applicable.
- Allowable expenses — the wholly-and-exclusively rules for business expenses are the same. See our freelancer expenses guide for what you can claim.
- Basis period rules — from 2024/25, sole traders are taxed on profits arising in the tax year (tax year basis). MTD quarterly updates align with this calendar-year approach.
What to do to prepare
Choose your software
Research MTD-compatible software now and start a free trial. The best choice depends on your business — a VAT-registered freelancer with complex expenses needs different software to a landlord with a single rental property.
Start keeping digital records now
Even if MTD does not apply to you until 2027 or 2028, start recording income and expenses digitally. Moving from a shoebox of receipts to structured digital records takes time — do not leave it until the deadline.
Talk to your accountant
If you use an accountant, confirm they will handle MTD submissions on your behalf and what it will cost. Many accountants include MTD filing in their annual fee; others charge per quarter.
Sign up for MTD voluntarily
HMRC allows voluntary sign-up before your mandatory start date. Early sign-up lets you test your software and processes without penalty risk — useful if you want to be confident before it becomes compulsory.
Exemptions and deferrals
Exemptions from MTD for Income Tax are narrow. You may qualify for an exemption if:
- You are unable to use digital tools due to disability, age or remote location without reliable internet access
- You object on religious grounds to using computers (the religious group must be recognised as incompatible with computer use)
- You are subject to an insolvency procedure
Exemptions are not automatic — you must apply to HMRC. Being below the income threshold is not an exemption; you simply fall outside the mandatory scope until your income exceeds the threshold.
Frequently asked questions
Does MTD apply to limited company directors?
MTD for Income Tax applies to sole traders and landlords, not limited companies. Limited company directors are not affected by the April 2026 changes.
Do I still file a Self Assessment return under MTD?
The annual Self Assessment return is replaced by the End of Period Statement and Final Declaration under MTD. The 31 January deadline for the final declaration remains.
What happens if I miss a quarterly deadline?
HMRC is introducing a points-based penalty system for MTD late submissions. You accumulate points for missed deadlines and face a financial penalty once you reach a threshold.
Can I use a spreadsheet under MTD?
Yes, using bridging software that connects your spreadsheet to HMRC's systems. This is lower-cost than full accounting software but requires more manual steps.
Does MTD affect how much tax I pay?
No. MTD is an administrative change to how you report to HMRC, not a change to tax rates, allowances or what expenses you can claim.
This guide is for general information only and does not constitute tax advice. MTD rules and timelines may change. Always verify current requirements at gov.uk or with a qualified accountant.