Making Tax Digital for self employed people: the complete guide

If you work for yourself, the way you report income to HMRC is changing. Making Tax Digital (MTD) for Income Tax replaces the single yearly scramble with small, regular updates sent from software. It sounds like more work, but for many people it simply means keeping records a little more tidily through the year. This guide explains everything in plain English, step by step.

What is Making Tax Digital for Income Tax?

MTD for Income Tax is HMRC's new way for sole traders and landlords to report their income. It has three parts:

• Digital records. You keep a record of your income and expenses in compatible software, not on paper.
• Quarterly updates. Every three months, your software sends HMRC a summary of your income and expenses so far.
• A final declaration. Once a year, you confirm your figures and submit your tax return, still by 31 January.

HMRC does not provide its own software. You choose a commercial product that works with MTD. Some are free for simple affairs (GOV.UK).

Who needs MTD, and when does it start?

You need MTD if your qualifying income is over a threshold. The threshold drops in three stages (GOV.UK):

1. 6 April 2026: qualifying income over £50,000 in the 2024 to 2025 tax year.
2. 6 April 2027: qualifying income over £30,000 in the 2025 to 2026 tax year.
3. 6 April 2028: qualifying income over £20,000 in the 2026 to 2027 tax year.

HMRC checks your qualifying income from your Self Assessment return each year and writes to people who are in scope. It estimates around 1,077,000 more sole traders and landlords will join from April 2027 (GOV.UK). Don't wait for the letter, though. It's much calmer to prepare early.

What counts as qualifying income?

Qualifying income is your total gross income from self-employment and UK property (GOV.UK). Gross means before expenses. So it's your turnover, not your profit.

These do not count:

• wages from a PAYE job
• dividends
• the State Pension and private pensions
• your share of profit from a partnership

If you also let out property, add your rent (before costs) to your self-employment income. If you own the property jointly, only your share counts.

Want to check your own figures? Use the checker below. It takes 30 seconds.

Do I need MTD for Income Tax? Free checker

Takes 30 seconds. Nothing you type leaves your device.

Which tax year are your figures from? 6 April 2024 to 5 April 2025 6 April 2025 to 5 April 2026 6 April 2026 to 5 April 2027 (estimate)

Self-employment income before expenses (turnover), £

UK property income before expenses (your share of rent), £

Do any of these apply to you?

My only business income is as a partner in a partnership I'm filing only as a trustee or personal representative

Check my MTD date

Based on GOV.UK rules checked 13 October 2026: check if you're eligible and work out your qualifying income. Employment (PAYE) wages, pensions, dividends and partnership profit shares do not count. This is a guide, not tax advice.

How do I sign up for MTD?

You sign up using HMRC's online service (GOV.UK). The GOV.UK page explains what you need and when to do it. In practice, it helps to do things in this order:

1. Check your start date with our Do I need MTD? checker.
2. Choose compatible software and set it up, ideally a few months early.
3. Sign up for MTD using the GOV.UK service, with your HMRC online account login details to hand.
4. Connect your software to HMRC. Your software will guide you through this.

If you have an accountant, ask whether they will sign you up. Many will handle it for you.

When are MTD quarterly updates due?

Quarterly updates are cumulative. Each one covers everything from the start of the tax year to the end of that quarter, not just the latest three months (GOV.UK). You can use standard quarters, which follow the tax year, or choose calendar quarters, which end on the last day of a month.

The deadlines are the same either way. The first update for the £50,000 group was due by 7 August 2026 (GOV.UK). If you join in April 2027, your first update will be due by 7 August 2027.

A quarterly update is not a tax return, and you don't pay tax with it. It's a summary of your income and expenses so far. Good software builds it for you from your records, so sending it can take a few minutes.

What does a typical MTD quarter look like?

Here's how it might work in practice. Aisha is a self-employed dog groomer who joins MTD in April 2027. (Aisha is an illustration, not a real customer.)

• Week by week: her bank feed pulls in card payments from customers. When she buys shampoo or pays for van fuel, she snaps the receipt on her phone and the app matches it.
• Early July: after the quarter ends on 5 July, she spends 20 minutes checking that every transaction has a category.
• Before 7 August: she presses submit. Her software sends the totals for 6 April to 5 July to HMRC.
• November, February and May: she repeats the same short routine. Each update adds the new quarter to the running total.
• By 31 January 2029: she submits her final declaration for the 2027 to 2028 tax year and pays any tax due.

The real change is the habit of recording things as you go, rather than gathering a year of receipts in January.

How much does MTD software cost?

Less than many people expect. Based on prices checked in October 2026 (ex VAT):

• Free: Clear Books Sole Trader Free, Sage Sole Trader Free and Zoho Books Free all cover MTD for simple affairs. FreeAgent is free with an eligible bank account.
• Around £5 to £10 a month: Clear Books Sole Trader (£5), Xero Simple (£7), Sage Sole Trader (£7) and QuickBooks Sole Trader Plus (£10).
• Around £20 a year: 123 Sheets bridging software, if you keep your records in a spreadsheet.

Intro offers change often, so always check the live price before you buy.

What is the final declaration?

The final declaration replaces the old Self Assessment tax return. After the tax year ends, you check your figures, add any other income (such as wages or savings interest), and confirm everything is correct. You submit it through your MTD software. The deadline is still 31 January after the end of the tax year (GOV.UK).

Some software can do the final declaration as well as quarterly updates. Check this before you buy, because some cheaper tools only send the quarterly part.

What are the MTD penalties?

HMRC is giving people time to adjust. It will not apply penalty points for late quarterly updates in the 2026 to 2027 tax year (GOV.UK). This is often called a "soft landing".

After that, a points system applies:

• You get 1 point for each late quarterly update.
• When you reach 4 points, you get a £200 penalty.

The soft landing does not cover everything. Penalties for a late tax return and for paying tax late still apply. So treat the 31 January deadline just as seriously as before.

Can I get an exemption from MTD?

Some people are exempt automatically (GOV.UK). These include partnerships (for now), anyone with qualifying income of £20,000 or less, people without a National Insurance number before the tax year started, trustees, personal representatives, Lloyd's members and a few others.

You can also apply for an exemption if you're digitally excluded. That means it's not reasonable for you to use software because of your age, health, disability, religious belief, or because you have no internet access. HMRC does not accept "I've never used software", "I have few records" or cost as reasons. If cost worries you, there's genuinely free MTD software.

How do I choose MTD software?

HMRC lists 171 compatible products for MTD for Income Tax (GOV.UK). HMRC does not recommend any of them. Here's a quick way to narrow it down:

• Bank with NatWest, RBS, Ulster Bank or Mettle? FreeAgent is free with an eligible account. Read our FreeAgent review.
• Want to pay nothing? Clear Books, Sage Sole Trader Free and Zoho Books Free all have free plans. See best free MTD software.
• Love your spreadsheet? Keep it and add bridging software. See best MTD bridging software.
• Planning to grow or register for VAT? Xero (from £7 a month ex VAT) and QuickBooks (from £10 a month ex VAT) grow with you.

Our full shortlist is in best MTD software for sole traders. Prices there were checked in October 2026, and intro offers change often.

Prices exclude VAT unless stated and were checked on each provider's website in October 2026. Introductory offers change often, so always confirm the live price. App ratings are from the UK App Store and Google Play in October 2026.

Your MTD checklist: what to do, step by step

1. Work out your qualifying income. Add your self-employment turnover and gross rent. Leave out wages, pensions and dividends.
2. Find your start date with our checker.
3. Talk to your accountant if you have one. Ask what software they use and whether they'll sign you up.
4. Pick software that covers quarterly updates and the final declaration.
5. Connect your bank if your software offers bank feeds (your transactions flow in automatically).
6. Practise a few months early, so you're comfortable before it counts.
7. Sign up for MTD on GOV.UK.
8. Diary the deadlines: 7 August, 7 November, 7 February, 7 May and 31 January.
9. Keep receipts digitally as you go. Snap a photo on your phone each time you buy something for the business.

Do CIS subcontractors need MTD?

Yes, if you're a sole trader. If you work in construction under the Construction Industry Scheme (CIS), you're in scope like any other sole trader. The test is based on your gross turnover, before the contractor's deductions. Your software should record CIS deductions. For how those deductions are treated in your case, check with HMRC or an accountant (HMRC MTD FAQs). See our best MTD software for CIS subcontractors for options.