The short version
If you’re a sole trader whose income was over £50,000 in the 2024/25 tax year, you must start using Making Tax Digital from 6 April 2026. That means keeping digital records and sending HMRC four quarterly updates a year, plus a final declaration, all through compatible software. This guide walks you through what to do, step by step, and for the full picture of the rules, start with our complete 2026 MTD guide.
Why this matters for the self-employed
For years, being a sole trader meant one annual Self Assessment return each January. MTD changes that rhythm. From your start date, HMRC expects your records to be digital and up to date throughout the year, with regular check-ins instead of one big catch-up. The upside: no more reconstructing twelve months of receipts in a panic. The catch: you need a system you’ll keep current.
Step 1: Check whether you’re in scope
Add up your gross income (before expenses) from self-employment and any property you let, for the 2024/25 tax year. If the combined total is over £50,000, you’re in the first phase from April 2026. Over £30,000 means April 2027; over £20,000 means April 2028. If you’re close to a threshold, plan as if you’ll be included, it’s easier than switching at the last minute. Once you know your figure, run it through our am I affected by MTD check, and check what HMRC defines qualifying income within its eligibility guidance on GOV.UK.
Step 2: Move your records into digital form
MTD requires digital record-keeping. If you currently use a shoebox of receipts or a basic spreadsheet, now is the time to move to software that records each transaction digitally. The least painful route is software that imports transactions straight from your bank, so the records build themselves.
Step 3: Get comfortable with quarterly updates
Four times a year you’ll send HMRC a summary of your income and expenses for the quarter. These are not tax bills and they’re not full returns, just running totals. With the right software it’s a few minutes: review what’s been categorised, confirm, and submit.
Step 4: Plan for the final declaration
After the tax year ends, you confirm your full income and finalise your tax by 31 January through your MTD software. This replaces the old Self Assessment submission for income covered by MTD.
Step 5: Choose software you’ll actually keep up with
The best MTD software for a sole trader is the one that does the work for you. Look for automatic bank feeds, automatic categorisation, a live tax estimate so there are no nasty surprises, and quarterly filing built in. If accounting isn’t your strength, prioritise plain-English explanations over feature lists you’ll never touch.
How CleanBooksAI fits
CleanBooksAI was built for sole traders who don’t want to think about bookkeeping. Open banking imports your transactions, Keeva categorises them automatically, your tax estimate updates in real time, and quarterly updates file directly to HMRC. You review rather than re-do, and you can start free.
Common mistakes to avoid
- Waiting until April 2026 to set up software. Give yourself a clean start by switching before the tax year begins.
- Assuming your VAT software automatically covers Income Tax. Check it supports MTD for IT quarterly updates.
- Mixing business and personal transactions. A separate account makes categorisation far cleaner.
- Leaving bookkeeping until quarter-end. The whole point of MTD is keeping records current.
FAQ
I’m a sole trader under £50,000, do I need to do anything? Not yet, but lower thresholds arrive in 2027 and 2028. Starting digital records now makes the eventual switch painless.
Do I file one update or several? One quarterly update per business. If you’re a sole trader and a landlord, that’s separate updates for each.
