Making Tax Digital for sole traders: what changes in April 2026, 2027 and 2028, and do you need software?

Updated 2026-11-15 · Researched by the SoleStack team · How we research

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Making Tax Digital for Income Tax (MTD for Income Tax) changes how many sole traders and landlords report to HMRC. Instead of one Self Assessment return a year, you keep digital records, send short quarterly updates through software, and then submit your tax return through that same kind of software by 31 January. This guide sets out who is in, when, and what software choices you actually have. Every date and figure below comes from GOV.UK, linked in the Sources section.

The timeline at a glance

You start MTD for Income Tax from	If your qualifying income was over	In the tax year
6 April 2026	£50,000	2024 to 2025
6 April 2027	£30,000	2025 to 2026
6 April 2028	£20,000	2026 to 2027

HMRC looks back at an earlier Self Assessment return to decide whether you are in. GOV.UK gives the example that the 2024 to 2025 return was used to decide who started in April 2026. So the return you file by 31 January 2027 for 2025 to 2026 is the one that decides whether you join in April 2027.

Who has to use it

According to HMRC's eligibility guidance, you need to use MTD for Income Tax if all of these apply:

you are a sole trader or landlord registered for Self Assessment
you receive self employment income, property income, or both
your qualifying income is above the threshold for the relevant tax year

If you are below the threshold for a given year, you do not need to use it yet. HMRC also says partnerships will need to use it in the future, but no timeline has been given.

Exemptions

Some people are exempt. HMRC gives being digitally excluded as an example, and you can apply for an exemption yourself, through an authorised agent, or through a friend or family member you have authorised. HMRC says a digital exclusion exemption may be permanent, and a temporary exemption lasting until at least April 2027 is also available. If you are exempt, you still report your income in a normal Self Assessment return.

What "qualifying income" actually means

This is the part most people get wrong. Qualifying income is gross, not profit. HMRC's guidance describes it as the amount before expenses, also known as turnover.

What counts:

self employment income (your turnover, before expenses)
property income, including UK and foreign property if you were UK tax resident
your share of jointly owned property income (HMRC's example: a property earning £50,000 owned in equal shares gives you £25,000)

What does not count:

employment income taxed through PAYE
dividends
State Pension and private pensions
your share of partnership profit as an individual partner

HMRC's own worked example: £25,000 of rental income plus £27,000 of self employment income gives qualifying income of £52,000. That person is over the £50,000 line even though neither income alone is.

A practical consequence: a sole trader turning over £32,000 with £20,000 of expenses (so £12,000 profit) is still over the £30,000 threshold, because the test uses turnover. Equally, someone with a large salary and a small side business can be well under it, because the salary does not count.

What you have to do once you are in

Keep digital records

Your software must create, store and correct digital records of your self employment and property income and expenses.

Send quarterly updates

Quarterly updates are summaries, not tax returns. HMRC says they contain totals for each income and expense category, not individual receipts or invoices, and you do not make tax adjustments before sending one. Each update is cumulative, running from the start of the tax year.

Update period (standard)	Deadline
6 April to 5 July	7 August
6 April to 5 October	7 November
6 April to 5 January	7 February
6 April to 5 April	7 May

If your accounting period runs 1 April to 31 March, you can choose calendar update periods instead (quarters ending 30 June, 30 September, 31 December and 31 March), with the same deadlines. You must choose this before sending your first update, and you cannot change it for the rest of that tax year.

Submit your tax return (the final declaration)

You still file a tax return, but through MTD compatible software, by 31 January after the end of the tax year. You confirm the figures are correct and complete. HMRC adds some income automatically, such as PAYE employment income, pensions and CIS deductions, which you must check. You add other income yourself, such as savings interest, dividends and partnership profits.

Penalties

MTD uses penalty points for late submissions.

For 2026 to 2027, HMRC will not apply penalty points for late quarterly updates. Late tax returns still get points.
From 2027 to 2028 onwards, each late quarterly update earns a point, and reaching 4 points triggers a £200 penalty.
Paying your tax late is a separate late payment penalty.

Do you need software? Yes, but not necessarily paid software

Once you are in MTD for Income Tax you must use compatible software. HMRC describes the requirements: the software must keep digital records, send quarterly updates, and let you submit your tax return. HMRC also notes you can only use one product for each separate submission you make.

There are three broad routes.

Route	How it works	Best for	Typical cost
Bridging software	Connects to records you already keep in spreadsheets or other tools, and sends the figures to HMRC	People happy with a spreadsheet who just need the submission step	Varies; some products are free
Free MTD software	A product with a free version for simple tax affairs	One simple income source, low transaction volume	£0, but HMRC warns there may be limits on use
Full accounting software	Bank feeds, invoicing, receipts and MTD submissions in one place	Busier sole traders, VAT registered businesses, anyone who wants less manual work	From £18 a month ex VAT for Xero Ignite (checked 15 Nov 2026)

Bridging software

HMRC says bridging software connects to existing records kept in spreadsheets or other accounting tools. If you already keep a tidy spreadsheet of income and expenses, this is the lightest change. The trade off is that you still do the bookkeeping by hand, and you need to make sure your spreadsheet has the categories HMRC asks for.

Free options

HMRC states that free products are available for those with simple tax affairs, but there may be limits on how the product can be used. Limits are usually on the number of income sources, transactions or features, so check what happens if your business grows during the year.

HMRC's software finder

The safest place to start is HMRC's own software finder. It asks a few questions (which income sources you have, whether you want to create new records or connect to existing ones, and your accounting period) and gives you a personalised list of compatible products. HMRC says more options will be added over time. Choose your software before you sign up.

When full accounting software is worth paying for

Full accounting software earns its keep when it saves you time: bank feeds that pull in transactions, receipt capture, invoicing, and quarterly figures that build themselves. It also helps if you are VAT registered or expect to take on staff.

Xero is one example. Based on its published UK plans, every Xero plan is marked as ready for MTD for Income Tax. The entry plan, Ignite, is £18 a month ex VAT (£21.60 inc VAT) and includes 20 invoices and quotes and 10 bills. Grow is £39 ex VAT (£46.80 inc VAT) with no cap listed on invoices, quotes or bills. Xero was also advertising a discount on the first six months for new UK customers when we checked; offers can change at any time. You can compare Xero's plans here.

See Xero's UK plansIgnite from £18 a month ex VAT (checked 15 Nov 2026)

If your affairs are simple and you are comfortable with spreadsheets, a free or bridging product may do everything you need. Paying for software is a convenience decision, not a legal requirement.

Who should pick what

Under the threshold for your year: you do not need MTD software yet. Keep good records and keep filing Self Assessment as normal. You can volunteer, and HMRC says volunteers are not penalised for late quarterly updates.
One simple income source, already using a spreadsheet: look at bridging software or a free product in HMRC's finder.
Landlord with one or two properties: check the finder for products that cover UK property (and foreign property if relevant) and joint ownership.
Busier sole trader, lots of transactions, or VAT registered: full accounting software with bank feeds is likely to save the most time.
Using an accountant: ask what they support before you choose, since they may already work with particular products.

FAQ

I earn under £30,000. Do I need MTD software?

Not for April 2027. The £30,000 test applies to qualifying income in 2025 to 2026. But remember qualifying income is gross turnover plus property income, so check the figure before deciding. If your 2026 to 2027 qualifying income is over £20,000, you will be brought in from 6 April 2028.

Is the threshold based on profit or turnover?

Turnover. HMRC defines qualifying income as the amount before expenses.

Does my salary count towards the threshold?

No. Employment income taxed through PAYE does not count, nor do dividends or pensions.

Can I keep using spreadsheets?

Yes, if you pair them with bridging software that connects to your spreadsheet and sends the figures to HMRC.

Is there free MTD software?

HMRC says free products exist for simple tax affairs, with possible limits on use. Use HMRC's software finder to see current options.

What happens if I send a quarterly update late?

For 2026 to 2027, HMRC will not apply penalty points for late quarterly updates. After that, each late update earns a point, and 4 points trigger a £200 penalty.

Do I still have to file a tax return?

Yes. You submit it through MTD compatible software by 31 January after the end of the tax year.

What if I am in a partnership?

HMRC says partnerships will need to use MTD for Income Tax in the future, but has not given a timeline. Your share of partnership profit as an individual partner does not count towards your qualifying income.