Everything you need to know about MTD
Making Tax Digital (MTD) for Income Tax is has arrived! Here is what Sole Traders need to know before April 2026.
Making Tax Digital (MTD) represents the biggest overhaul of the UK tax system in a generation. While many businesses are already familiar with MTD through VAT reporting, the next phase of the programme introduces major changes for sole traders and landlords, fundamentally transforming how income tax is reported.
From April 2026, millions of self-employed individuals will need to move away from traditional annual self-assessment and adopt digital record keeping and quarterly reporting. This article explains what’s changing, who it affects, the key dates you need to know, and how to prepare—so you stay compliant and stress-free.
What Is Making Tax Digital?
Making Tax Digital is HMRC’s long-term initiative to modernise the UK tax system. Its goals are simple:
Reduce errors
Improve efficiency
Make tax administration easier
Close the tax gap
Under MTD, taxpayers must:
Keep digital financial records
Use HMRC-approved software
Submit quarterly updates to HMRC
File a final declaration annually
This replaces the traditional annual self-assessment model where figures are reported long after the end of the tax year.
MTD for VAT: A Proven System Already in Place
For VAT-registered businesses, MTD is nothing new. Since April 2019, VAT-registered companies have been required to keep digital records and submit VAT returns using MTD-compatible software.
After initial teething problems, MTD for VAT has proven highly successful. Businesses now benefit from:
More accurate bookkeeping
Faster submissions
Fewer calculation errors
Improved cash flow visibility
This successful rollout paved the way for extending MTD to income tax for sole traders and landlords—the next major milestone in HMRC’s digital transformation.
What’s Changing for Sole Traders?
From April 2026, self-employed individuals and landlords earning above certain thresholds will be required to comply with Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).
Instead of filing one annual tax return, you will now need to:
Keep real-time digital records
Send quarterly updates summarising income and expenses
Submit a final declaration at the end of the tax year
This change means far more frequent reporting—but also much better financial insight and fewer last-minute tax shocks.
Who Needs to Comply – Key Thresholds & Rollout Timeline
MTD for Income Tax is being introduced in stages, based on your total gross income from self-employment and property combined.
📅 Rollout Roadmap
From 6 April 2026
If your annual turnover exceeds £50,000, you must comply.
From 6 April 2027
The threshold reduces to £30,000.
From 6 April 2028
The threshold drops again to £20,000, bringing millions more sole traders into scope.
This phased rollout gives businesses time to prepare, but the window for action is already narrowing fast.
Key Dates You Must Know
Here are the most important dates for sole traders affected from April 2026:
31 January 2026 – Deadline for submitting your 2024/25 Self Assessment tax return
6 April 2026 – Start of mandatory digital record keeping
7 August 2026 – First quarterly update deadline
7 November 2026 – Second quarterly update
7 February 2027 – Third quarterly update
7 May 2027 – Fourth quarterly update
31 January 2028 – Deadline for submitting your final digital tax declaration
Missing deadlines can result in penalty points and financial penalties, so preparation is critical.
What Does Quarterly Reporting Mean in Practice?
Quarterly updates are not tax payments—they are digital summaries of your business income and expenses sent directly from your accounting software.
Rather than scrambling once a year to gather receipts and bank statements, MTD promotes continuous bookkeeping, giving you:
Better cash flow forecasting
Real-time performance tracking
More accurate tax estimates
Fewer year-end surprises
Ultimately, this can lead to smarter business decisions and stronger financial control.
Why Preparation Matters Now
Even though April 2026 might feel a long way off, waiting until the last minute is risky.
Businesses that embraced MTD early for VAT generally experienced smoother transitions, fewer errors, and reduced compliance stress.
Early preparation allows time to:
Choose the right accounting software
Digitise your records
Optimise bookkeeping processes
Train staff or yourself
Resolve system issues
Procrastination, on the other hand, increases the risk of errors, penalties, and operational disruption.
Why Xero Is the Best Platform for MTD Compliance
When it comes to digital bookkeeping and MTD compliance, Xero stands out as the leading cloud accounting platform for sole traders.
Why Choose Xero?
Fully HMRC-approved for MTD compliance
Simple, intuitive interface
Real-time bank feeds
Automated transaction matching
Powerful reporting tools
Excellent mobile app
Seamless accountant collaboration
Xero makes digital record keeping simple, accurate, and efficient—saving time while giving you full visibility over your finances.
Whether you're a seasoned business owner or newly self-employed, Xero provides a future-proof solution that grows with your business.
How Abacus Accountancy Can Help You Prepare
Navigating MTD compliance can feel overwhelming—especially if you’re transitioning from spreadsheets, paper records, or manual bookkeeping.
That’s where Abacus Accountancy comes in.
Their expert team specialises in helping sole traders and small businesses:
Understand their MTD obligations
Implement compliant digital systems
Migrate bookkeeping to Xero
Optimise financial processes
Avoid costly penalties
Free MTD Compliance Audit – Act Now
To help businesses prepare, Abacus Accountancy is offering a FREE audit to assess your readiness for Making Tax Digital.
This no-obligation review will:
Check your current bookkeeping systems
Identify compliance gaps
Recommend improvements
Provide a clear roadmap to full compliance
📞 Call Abacus Accountancy today on 01376 343535
and book your FREE MTD compliance audit.
Taking action now means you’ll avoid last-minute stress, penalties, and costly mistakes when the legislation comes into force.