Making Tax Digital: What Freelancers
and Sole Traders Need to Know
HMRC is digitising the UK tax system. Making Tax Digital for Income Tax arrives for higher-earning sole traders in April 2026. Here is what it means, who is affected, and how to prepare your invoicing now.
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What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to move the UK tax system online. The aim is to eliminate paper records and end-of-year surprises by having businesses and self-employed people submit income and expense data to HMRC digitally throughout the year.
MTD covers two main taxes relevant to freelancers and sole traders: VAT (already mandatory for all VAT-registered businesses) and Income Tax (coming in phases from 2026). Under MTD, you must use compatible software to keep your records and submit data — you cannot simply send a spreadsheet or fill in an online form as you may have done before.
The core idea: instead of totting up a year's worth of income and expenses every January, you maintain digital records throughout the year and send quarterly snapshots to HMRC. Tax becomes a continuous, lower-stress process rather than an annual scramble.
MTD for VAT — already mandatory
If you are VAT registered, you are already subject to Making Tax Digital. MTD for VAT became mandatory for all VAT-registered businesses in April 2022 — regardless of turnover.
This means you must keep digital VAT records and submit your VAT returns through MTD-compatible software. You can no longer log in to the HMRC VAT portal and type in your numbers manually.
Who is affected?
All VAT-registered businesses in the UK, including sole traders and freelancers — no minimum turnover.
What must you do?
Keep digital VAT records and submit quarterly VAT returns via MTD-compatible software (such as accounting platforms or Invoa).
Since when?
April 2022 for all VAT-registered businesses. Larger businesses were brought in from April 2019.
Not yet VAT registered but wondering if you should be? Read our VAT invoice guide →
MTD for Income Tax (ITSA) — the big change coming
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) will fundamentally change how sole traders and landlords report their income to HMRC. Instead of filing one annual Self Assessment tax return, you will make four quarterly digital submissions throughout the year, plus a final end-of-year declaration.
The rollout is phased by income level. It starts in April 2026 for those earning over £50,000 from self-employment or property, and extends in April 2027 to those earning over £30,000.
What MTD ITSA requires
Keep digital records of income and expenses
You must record all business income and expenses digitally, in software that is compatible with HMRC's MTD system. Spreadsheets alone are not sufficient unless linked to bridging software.
Submit quarterly updates to HMRC
Four times a year (roughly every three months), you must send a summary of your income and expenses to HMRC. These are not tax payments — they are reporting submissions that give HMRC an up-to-date picture of your finances.
Submit a final declaration
At the end of each tax year, you submit a final declaration to confirm your figures, claim any reliefs or allowances, and settle your tax liability. This replaces the traditional Self Assessment tax return.
Note on the £10,000 threshold: Earlier MTD ITSA legislation referred to a £10,000 income threshold. This was revised by the government. The current mandatory thresholds are £50,000 from April 2026 and £30,000 from April 2027. HMRC has not confirmed if or when a lower threshold will apply.
What does MTD mean for your invoicing?
The "digital records" requirement is where invoicing becomes central to MTD compliance. HMRC requires that your income records are kept digitally and can be used to produce quarterly submissions without manual re-keying of data. For a freelancer or sole trader, your invoices are your income records.
Every invoice needs to be digitally recorded
Under MTD, you cannot rely on a shoebox of paper invoices or a PDF folder you tally up once a year. Your income must be recorded in digital software as it occurs — invoice by invoice. Invoa creates and stores all your invoices digitally from the moment you raise them.
Your records need to be queryable by quarter
Quarterly submissions require you to pull income and expense totals for specific three-month periods. If your invoices are scattered across email, paper, and spreadsheets, this becomes a painful quarterly task. With Invoa, all invoices are timestamped, searchable, and ready to report on at any time.
You need to know what was paid, not just invoiced
MTD ITSA, like the existing cash basis for Self Assessment, centres on money actually received. Invoa tracks payment status for every invoice, so you always know which invoices have been paid and when — giving you clean, accurate income figures for each quarter.
Compatible software talks to HMRC for you
Quarterly submissions must be made via software that connects to HMRC's API — you cannot submit them manually. Invoa integrates with your accounting workflow so your invoice data flows cleanly into your MTD submissions without double-entry.
MTD timeline: key dates
April 2019
MTD for VAT — first businesses
MTD for VAT became mandatory for VAT-registered businesses with taxable turnover above the £85,000 threshold. These businesses had to start keeping digital VAT records and submit returns via MTD-compatible software.
April 2022
MTD for VAT — all VAT-registered businesses
MTD for VAT extended to all remaining VAT-registered businesses, regardless of turnover. From this point, every VAT-registered business in the UK must use MTD-compatible software for their VAT returns.
April 2026
MTD for Income Tax — Phase 1 (over £50,000)
MTD for Income Tax Self Assessment (ITSA) becomes mandatory for sole traders and landlords with qualifying income over £50,000. Quarterly digital submissions to HMRC replace the annual Self Assessment return.
April 2027
MTD for Income Tax — Phase 2 (over £30,000)
MTD for ITSA extends to sole traders and landlords with qualifying income over £30,000. Those earning between £30,000 and £50,000 will need to comply from this date.
Am I affected?
MTD ITSA applies to sole traders and landlords based on their qualifying income — broadly, gross income from self-employment and UK property combined. Use the table below to check your position.
My sole trader income is over £50,000 per year
My sole trader income is between £30,000 and £50,000 per year
My sole trader income is under £30,000 per year
I am VAT registered (any turnover)
Qualifying income means gross income before expenses, not profit. Even if you are not yet required to comply, it is worth getting your digital record-keeping in order now. HMRC may lower the threshold in future.
MTD frequently asked questions
When does Making Tax Digital for Income Tax start?
MTD for Income Tax starts in April 2026 for sole traders and landlords with qualifying income over £50,000. It extends to those with qualifying income over £30,000 from April 2027. HMRC has not confirmed a date for those earning below £30,000.
What is a quarterly update and do I have to pay tax each quarter?
A quarterly update is a digital submission summarising your income and expenses for the previous three months. You do not pay tax each quarter — the submissions are informational. Your actual tax liability is calculated at the end of the tax year when you submit your final declaration.
Does Making Tax Digital for VAT affect me now?
If you are VAT registered, yes. MTD for VAT has applied to all VAT-registered businesses since April 2022. You must use MTD-compatible software to submit your VAT returns. If you are not VAT registered — because your turnover is below the £90,000 threshold — MTD for VAT does not apply to you yet.
What counts as MTD-compatible software?
MTD-compatible software must be able to keep digital records and submit data directly to HMRC via their API. HMRC publishes a list of recognised software on their website. Basic spreadsheets are not sufficient unless linked to approved bridging software. Dedicated invoicing and accounting platforms that connect to the MTD API are the most straightforward solution.
Can I use Invoa to meet MTD digital record-keeping requirements?
Invoa keeps all your invoices and income records digitally in one place, with payment status tracked for every invoice — exactly what MTD's digital records requirement demands. Your invoice data is always organised, timestamped, and ready to report by quarter, making it straightforward to feed accurate figures into your MTD submissions via your accountant or accounting software.
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Self-employed invoicing guide
What to include, records, Self Assessment
VAT invoice guide
MTD for VAT and HMRC requirements
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