Making Tax Digital for Tradespeople: What You Need to Know

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is HMRC's plan to move self-employed people away from the annual Self Assessment tax return and onto a system of quarterly digital updates.

Instead of filing one tax return per year, you will use HMRC-recognised accounting software to keep digital records of your income and expenses throughout the year — then submit a summary to HMRC every quarter.

At the end of the year, you still confirm your final tax position with an End of Period Statement and a Final Declaration. It replaces your Self Assessment return.

Who Does MTD for Income Tax Affect?

MTD for Income Tax applies to self-employed sole traders and landlords. It is being rolled out in phases based on income level:

What Changes Under MTD?

What you do now (old system)

• Keep records however you like (spreadsheet, shoebox, paper)
• File one Self Assessment tax return per year by 31 January
• Pay your tax bill in January and July (payments on account)

What you do under MTD (new system)

• Keep digital records in MTD-compatible software throughout the year
• Submit quarterly updates to HMRC (4 times per year)
• Submit an End of Period Statement at the end of the tax year
• Confirm your Final Declaration (replaces the Self Assessment return)
• Pay tax on the same schedule (no change to when you pay)

The Quarterly Submission Deadlines

Your tax year runs from 6 April to 5 April. Your four quarterly updates are due as follows:

Quarter	Period Covered	Submission Deadline
Quarter 1	6 April – 5 July	5 August
Quarter 2	6 July – 5 October	5 November
Quarter 3	6 October – 5 January	5 February
Quarter 4	6 January – 5 April	5 May

Your End of Period Statement and Final Declaration are due by 31 January following the end of the tax year — same as the current Self Assessment deadline.

What Software Do You Need?

You must use HMRC-recognised MTD-compatible software. You cannot use a spreadsheet on its own (though some bridging software allows spreadsheets to connect to HMRC). Options include:

Cost varies from free to around £20–40/month depending on the software. Your accountant may already use one of these and can add you to their system.

What Do You Actually Submit Each Quarter?

Each quarterly update is a summary of your income and expenses — not a full tax return. You are not paying tax quarterly. You are just telling HMRC what you have earned and spent.

The software does this automatically by pulling from your digital records. You review it, confirm it looks right, and submit. It takes minutes once your bookkeeping is up to date.

The key thing: your bookkeeping needs to be kept up to date throughout the year rather than all being done in January. This is the biggest practical change for most tradespeople.

What About Partnerships and Limited Companies?

MTD for Income Tax currently only applies to sole traders (self-employed individuals) and individual landlords. Partnerships will be added to MTD in a later phase — no confirmed date yet. Limited companies are already subject to MTD for VAT but are not in scope for MTD for Income Tax.

Penalties for Missing MTD Deadlines

HMRC uses a points-based system for late submissions:

• Each missed quarterly update = 1 penalty point
• Reach 4 points = £200 penalty
• Each further missed submission = another £200 penalty
• Points expire after 24 months if you stay compliant

Late payment penalties are separate and work the same as current rules — interest on unpaid tax from the due date.

What Should You Do Now?

1. Check whether you are in the first wave — if your total self-employment income is over £50,000, you need to be ready by April 2026.
2. Choose your software — speak to your accountant if you have one, or research options. Don't leave this to March 2026.
3. Start keeping better digital records now — the transition will be much easier if your bookkeeping is already organised.
4. Sign up for MTD — you need to sign up through your HMRC online account or through your software. You cannot be automatically enrolled.
5. Talk to your accountant — if you use one, discuss how this changes your workflow together.

Frequently Asked Questions

• What is Making Tax Digital for Income Tax?
  Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) replaces the annual Self Assessment tax return with quarterly digital submissions. From April 2026, self-employed people earning over £50,000 must use compatible software to keep digital records and submit updates to HMRC every quarter.
• When does Making Tax Digital start for self-employed people?
  MTD for Income Tax starts in April 2026 for self-employed people with income over £50,000. Those earning £30,000–£50,000 must join from April 2027. Those earning £20,000–£30,000 must join from April 2028. HMRC has not yet set a date for those earning under £20,000.
• Do I need to submit quarterly tax returns under MTD?
  Under MTD for Income Tax, you submit quarterly updates — not full tax returns. These updates summarise your income and expenses for each quarter. You still submit an End of Period Statement and a Final Declaration once a year to finalise your tax position.
• What software do I need for Making Tax Digital?
  You need HMRC-recognised MTD-compatible software. Options include QuickBooks Self-Employed, FreeAgent, Xero, Sage, and others. Some free options exist for simpler cases. HMRC maintains a full list of compatible software on their website.
• What happens if I miss a Making Tax Digital deadline?
  HMRC uses a points-based penalty system. Each missed submission adds a penalty point. Once you reach 4 points, you receive a £200 penalty. Further missed submissions incur additional £200 penalties. Points expire after 24 months if you stay compliant.
• Does MTD apply to limited companies?
  No. MTD for Income Tax only applies to sole traders and individual landlords. Limited companies are already subject to MTD for VAT but are not in scope for MTD for Income Tax Self Assessment.

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