MTD Income Tax for Self-Employed: How to Set It Up

Step-by-Step: How to Get Set Up for MTD

1. 1
   Check whether you need to join and when

   Your income threshold is your total self-employment turnover — not profit. Over £50,000 = April 2026. £30,000–£50,000 = April 2027. £20,000–£30,000 = April 2028. Check your last Self Assessment return for your total income figure.

2. 2
   Choose your MTD-compatible software

   Pick software that fits your needs and budget. QuickBooks Self-Employed and FreeAgent are popular with sole traders. If you have an accountant, ask what they use — being on the same platform makes their job (and your bill) easier. Most cost £10–£25/month.

3. 3
   Set up your software and connect to HMRC

   Create your account, enter your business details (name, UTR, business type), and connect the software to your HMRC account via the MTD authorisation process. This is done within the software itself — it walks you through it. You will need your Government Gateway login.

4. 4
   Sign up for MTD with HMRC

   You must actively sign up for MTD — HMRC will not enrol you automatically. You can sign up through your HMRC online account or through your software. Do this before 6 April 2026 if you are in the first wave. Once signed up, you cannot file a traditional Self Assessment return.

5. 5
   Start recording income and expenses digitally

   From the start of your first MTD period, every transaction must be recorded digitally. Most software has a mobile app — photograph receipts on the go, categorise expenses, and log invoices as you raise them. The more current your records, the easier each quarterly update will be.

6. 6
   Submit your first quarterly update

   At the end of each quarter, review your income and expense summary in the software. Check it looks right, correct any miscategorised items, then submit to HMRC. Your software will show the deadline. The submission takes minutes if your records are current.

7. 7
   Submit your End of Period Statement and Final Declaration

   At the end of the tax year (by 31 January), you submit your End of Period Statement to confirm your business figures for the year. Then your Final Declaration confirms your total income and any other sources (employment, rental income etc.). This replaces your old Self Assessment return.

Choosing the Right Software

Here is a straightforward comparison for sole-trader tradespeople:

What to Record and How

Under MTD, your digital records must include for every transaction:

• The date
• The amount
• The category (HMRC expense category)

You do not need to attach a digital copy of every receipt, but HMRC strongly recommends it. Most software lets you photograph receipts with your phone and attach them to the transaction. This protects you in the event of an enquiry.

Common expense categories for tradespeople

• Cost of goods sold — materials used on jobs
• Motor expenses — van fuel, insurance, repairs, MOT
• Tools and equipment — purchases and repairs
• Insurance — public liability, tools, van
• Professional fees — accountant, trade memberships
• Phone and broadband — business proportion only
• Clothing/PPE — work-specific only, not everyday wear
• Training and CPD — courses, certifications
• Bank charges and interest — business account only

The Quarterly Routine in Practice

The key to making MTD painless is a consistent weekly routine:

• Weekly (5 minutes): Log any expenses, photograph receipts, check any income received against invoices raised.
• Monthly (15 minutes): Reconcile your bank account against your records. Fix any miscategorised items.
• Quarterly (20 minutes): Review the summary, check it looks right, submit to HMRC.

The people who find MTD stressful are the ones who let it pile up and then try to do three months of bookkeeping the week before the deadline. Do it little and often and it genuinely is not a burden.

What If You Already Use an Accountant?

Talk to them now. Your accountant will likely already be preparing for MTD and may want to move you onto their preferred software. They may also want to adjust their fees — quarterly interactions are more work than one annual return.

The upside is that with quarterly submissions, your accountant will have a much more current picture of your finances — which means better tax planning advice throughout the year, not just in January.

Frequently Asked Questions

• Do I need an accountant for Making Tax Digital?
  No. The software is designed so sole traders can manage it themselves. However, if your tax affairs are complex, an accountant saves time and money. Many already use MTD-compatible software and can include you in their system.
• Can I use a spreadsheet for Making Tax Digital?
  Not on its own. You cannot submit directly to HMRC from a spreadsheet. Some bridging software connects spreadsheets to HMRC. For most tradespeople, dedicated software is simpler and often cheaper than making a spreadsheet work.
• How long do quarterly MTD updates take?
  If your bookkeeping is kept up to date throughout the quarter, a quarterly update takes around 10–20 minutes to review and submit. The work is in keeping your records current, not in the submission itself.
• What counts as digital records for MTD?
  Digital records must include the date, amount, and category of each transaction. You do not need to store physical receipts digitally, but HMRC recommends it. Most MTD software lets you photograph receipts with your phone and attach them to transactions.
• What if I miss a quarterly update deadline?
  You receive a penalty point. Reach 4 points and you get a £200 fine. Each further missed submission adds another £200. Points expire after 24 months if you stay compliant. Submit as soon as you realise you have missed it — do not let points accumulate.

Related Guides