Making Tax Digital for Income Tax (often shortened to MTD for ITSA) is one of the biggest changes to self‑assessment in a generation. Instead of reporting income once a year, sole traders and landlords will be required to keep digital records and send regular updates to HMRC using software.
The key thing to understand is that MTD for Income Tax is being introduced in stages, based on your level of income. Even if it doesn’t apply to you yet, it very likely will soon.
Making Tax Digital for Income Tax will affect hundreds of thousands of sole traders across the UK from April 2027 and April 2028. If you are self‑employed and earning over £30,000, or heading towards £20,000 turnover, it is essential to understand how MTD works and when you need to act.
This article explains how the stepped approach works, what you need to watch out for, what you should be thinking about now, and when it’s time to speak to ATS Accountants.
At ATS Accountants, we help sole traders prepare for Making Tax Digital by reviewing income thresholds, setting up compliant software, and handling quarterly submissions where needed. Early preparation reduces stress, errors, and the risk of HMRC penalties.
The Stepped Approach: Who Joins and When
HMRC is rolling out MTD for Income Tax in phases, based on qualifying income (this is gross income before expenses, not profit) from self‑employment and/or UK property.
Step 1 – From April 2026
If your qualifying income is over £50,000, you are already required to use MTD for Income Tax.
Step 2 – From April 2027
From 6 April 2027, MTD for Income Tax becomes mandatory if your qualifying income is over £30,000.
Step 3 – From April 2028
From 6 April 2028, the threshold reduces further. Anyone with qualifying income of £20,000 or more will be required to join MTD.
Importantly, HMRC looks at turnover, not profit. Even if your profits are modest, you could still be within scope if your gross income exceeds the threshold.
What Changes Under MTD for Income Tax?
Under the current system, most sole traders submit one Self Assessment tax return per year.
Under MTD for Income Tax, you’ll need to:
- Keep digital accounting records
- Use HMRC‑approved software (spreadsheets alone are not enough without bridging software)
- Submit quarterly updates of income and expenses
- File a Final Declaration after the end of the tax year
This means five submissions per year, instead of one – and five deadlines, instead of one.
MTD does not change how much tax you pay, but it does change how and when you report information to HMRC.
What Sole Traders Need to Look Out For
1. Qualifying Income Catches People Out
MTD thresholds are based on gross income, not profit, amount after expenses, PAYE salary, dividends or savings income.
If you have both self‑employment and rental income, HMRC adds them together when assessing whether you’re within scope.
2. Software Is Mandatory
HMRC will not provide a free online system for MTD submissions. If you are within scope, you must use commercial MTD‑compatible software. If you have an accountant, normally they should take care of this.
This is one of the biggest practical changes for smaller sole traders who currently use paper records or simple spreadsheets.
3. Quarterly Reporting Requires Ongoing Bookkeeping
Quarterly updates mean bookkeeping can no longer be left until year‑end. Records need to be:
- Accurate
- Up to date
- Categorised correctly throughout the year
Late or incorrect submissions can lead to penalties once the full system goes live.
4. Once You’re In, You Stay In (For a While)
If your income later falls below a threshold, you don’t immediately leave MTD. HMRC generally requires you to stay in the system for a set period before you can apply to exit.
What You Should Be Considering Now
Even if MTD doesn’t apply to you until 2027 or 2028, waiting until the last minute is risky.
You should be thinking about:
- Whether your income is close to the £30,000 or £20,000 thresholds
- How tidy and consistent your current records are
- Whether your bookkeeping process would cope with quarterly reporting
- What software you’ll need
- Whether you want to handle submissions yourself or delegate them
Preparing early removes pressure, spreads costs, and reduces errors when MTD becomes mandatory.
When Do You Need to Act?
Act Now If:
- Your income is already over £30,000
- Your income fluctuates around the threshold
- You expect growth in the next 12–24 months
- You currently use paper or spreadsheet‑only records
Act Within the Next 12 Months If:
- You’re between £20,000–£30,000
- You have rental income alongside self‑employment
- You want time to transition gradually
HMRC will not automatically sign you up – you will need to register and be ready in advance of your start date.
When to Talk to ATS Accountants
You should speak to ATS Accountants if:
- You’re unsure whether you fall within scope
- You don’t know what counts as qualifying income
- You want help choosing and setting up software
- You’d prefer us to handle quarterly submissions for you
- You want peace of mind that everything is compliant
MTD for Income Tax is not just a compliance change, it’s an opportunity to get better, clearer, and more proactive financial information if it’s done properly.
We can help you:
- Assess when MTD applies to you
- Prepare your records and systems
- Decide whether to DIY or outsource
- Avoid penalties and unnecessary stress
Need Help Getting Ready?
If you’re a sole trader or landlord and want to understand how MTD affects you specifically, get in touch with ATS Accountants – Contact ATS Accountants for Expert Accounting Services. The earlier you prepare, the smoother the transition will be.
Getting ready early costs less, creates fewer surprises, and keeps you firmly in control.
