Making Tax Digital for Income Tax: What Every Sole Trader Needs to Do Before April 2026
By Invoa Team
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is the biggest change to how sole traders and landlords report their income to HMRC in a generation. From April 2026, if your qualifying income exceeds £50,000 per year, you will no longer file a single annual Self Assessment return. Instead, you will submit digital updates to HMRC four times a year — using compatible software — with a final declaration at the end of the tax year.
The April 2026 deadline is closer than it looks. If you are not already keeping digital records and using HMRC-compatible software, now is the time to start. This guide walks through everything you need to know: who is affected, what changes, and the five practical steps to take right now.
Who does MTD for Income Tax affect?
MTD ITSA is being rolled out in stages based on income level:
What counts as qualifying income? Qualifying income is the gross (before expenses) income from self-employment and UK property income added together. It does not include employment income from a PAYE job, dividends, or investment income. If you are both employed and self-employed, only the self-employment side counts towards the threshold.
Not sure if you are affected?
Add up your gross income from freelance work and self-employment for the last full tax year — before deducting any expenses. If that figure is over £50,000, the April 2026 deadline applies to you. If it is between £30,000 and £50,000, your deadline is April 2027.
What changes under MTD for Income Tax?
Under the current Self Assessment system, you have until 31 January following the end of the tax year to file your return and pay any tax owed. It is a once-a-year process that many freelancers leave until the last minute.
Under MTD ITSA, that changes to a quarterly rhythm:
Quarterly updates
Four times a year you submit a summary of your income and expenses to HMRC using MTD-compatible software. This is not a tax payment — it is a reporting update.
End of Period Statement (EOPS)
At the end of the tax year you confirm your final figures for each income source (self-employment, property, etc.) through your software.
Final Declaration
You replace the annual Self Assessment return with a Final Declaration, which adds in any other income (savings, dividends, etc.) and calculates the total tax due.
Importantly, MTD does not change how much tax you pay or when you pay it. The payment-on-account system and 31 January payment deadline for any balancing charge will continue as before. What changes is how often you report your income to HMRC — and the requirement to do it digitally.
What are quarterly updates?
A quarterly update is a summary of your income and allowable business expenses for a three-month period. You submit it through MTD-compatible software — it goes directly to HMRC, not via a paper form or the HMRC portal.
Quarterly updates are not tax returns. You do not need to calculate your exact tax liability or pay anything when you submit one. They are essentially a running total that keeps HMRC informed of your approximate income position throughout the year.
There are four submission deadlines each year, one month after the end of each quarter:
Quarter 1
6 Apr – 5 Jul
Submit by 5 August
Quarter 2
6 Jul – 5 Oct
Submit by 5 November
Quarter 3
6 Oct – 5 Jan
Submit by 5 February
Quarter 4
6 Jan – 5 Apr
Submit by 5 May
Missing a quarterly deadline will eventually carry a penalty under HMRC's points-based system, similar to the approach already used for VAT returns. The exact penalty structure for MTD ITSA has not yet been fully confirmed, but it is expected to follow the same model.
What counts as keeping digital records?
Under MTD, “digital records” has a specific meaning. It does not simply mean having your invoices saved as PDFs on your laptop, or a spreadsheet you fill in once a year when completing your return.
Digital records must be kept in MTD-compatible software and must capture:
- Each sales invoice — who you invoiced, the date, and the amount
- Each business expense — the date, amount, supplier, and category
- Any other income relevant to the quarterly update period
The key distinction is that the data itself must live in compatible software — not just scanned copies of paper records. A photo of a receipt saved to Dropbox is not a digital record under MTD. Neither is a manual spreadsheet that is not connected to HMRC-approved bridging software.
Spreadsheets: a special case
HMRC does allow spreadsheets — but only if they are used with “bridging software” that connects the spreadsheet to HMRC's MTD API. A plain Excel or Google Sheets file on its own will not qualify. Using dedicated software from the outset is simpler and less error-prone than the bridging route.
What software do I need?
You will need HMRC-recognised MTD-compatible software. HMRC publishes and maintains a list of approved products on their website — any software you use for quarterly submissions must appear on that list.
In practice, most freelancers will need two things working together:
Invoicing software (income side)
Records every invoice you raise — client, date, amount, and payment status. Invoa stores all of this digitally, giving you a compliant record of your income as you go. Every invoice raised in Invoa is already a digital record for MTD purposes.
Bookkeeping or accounting software (expenses + submissions)
You will also need software to track business expenses and, ultimately, to submit your quarterly updates and final declaration to HMRC. Many MTD-compatible platforms handle both income and expenses.
For a full breakdown of what MTD ITSA means for your software setup, see our complete MTD for Income Tax guide.
5 things to do right now
You do not need to wait for HMRC to open MTD sign-up before you start preparing. Here are the five most important things to do today:
Check your income threshold
Look at your last two tax years. If your gross income from self-employment and/or UK property was over £50,000 in either year, the April 2026 deadline almost certainly applies to you. If it was between £30,000 and £50,000, start preparing for April 2027.
Start keeping digital invoice records now
If you are still raising invoices in Word, Excel, or on paper, switch to a dedicated invoicing platform. Every invoice you raise in Invoa is automatically a compliant digital record. The sooner you start, the more historical data you will have when the deadline arrives.
Register for MTD ITSA when HMRC opens sign-up
HMRC will open voluntary sign-up ahead of the April 2026 mandatory start. Watch for communications from HMRC and sign up early — it allows you to test the process before it becomes compulsory and may help you avoid administrative problems at the deadline.
Talk to your accountant
If you use an accountant or bookkeeper, speak to them now about their MTD plans. Many accounting firms are already migrating clients to MTD-compatible software. Your accountant may be able to handle your quarterly submissions on your behalf.
Get used to quarterly thinking
MTD works best if you review your income and expenses at the end of each quarter rather than scrambling at year end. Set a recurring calendar reminder — the submission deadlines are 5 August, 5 November, 5 February, and 5 May.
The bottom line
MTD for Income Tax is a significant administrative change, but it is manageable if you prepare early. The core shift is from annual, last-minute reporting to quarterly, ongoing record-keeping. That is actually a healthier habit for your business finances regardless of HMRC requirements — and the software tools available today make it straightforward to maintain.
Invoa helps you stay organised by keeping every invoice you raise as a digital record — the income side of MTD compliance, handled automatically. A free plan is available with no credit card required.
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