Making Tax Digital for Income Tax: What UK Sole Traders Must Do Before 7 August 2026

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC's biggest change to how self-employed people report their income in a generation. Yet most sole traders I speak to have never heard of it — or assume it only applies to VAT (it does not).

This article explains exactly what MTD ITSA is, who it affects right now, what you need to do, and the deadlines you cannot afford to miss.

What is MTD for Income Tax?

Making Tax Digital for Income Tax is a new system requiring self-employed people and landlords to keep digital records and submit quarterly updates to HMRC — instead of a single annual Self Assessment return.

MTD for VAT has been running since 2019 and most VAT-registered businesses are already on it. MTD for Income Tax is entirely separate and will eventually cover almost every self-employed person in the UK.

Under the new system you will:

• Keep all income and expense records digitally using HMRC-compatible software
• Submit a quarterly update to HMRC — four times a year instead of once
• Submit a final declaration at year end confirming your total figures

The quarterly updates are not full tax returns — they are summaries of your income and expenses for that quarter. Think of them as progress reports that HMRC can monitor in real time.

Who does it apply to right now?

The rollout happens in three phases. Here is the full picture:

The £50,000 figure is your gross turnover — total income before expenses or allowances are deducted. It is not your profit. If you have both self-employment income and rental income, HMRC combines them when calculating your threshold.

What are the quarterly deadlines?

For the 2026/27 tax year, the four submission deadlines are:

• 7 August 2026 — Quarter 1 (6 April to 5 July 2026)
• 7 November 2026 — Quarter 2 (6 July to 5 October 2026)
• 7 February 2027 — Quarter 3 (6 October to 5 January 2027)
• 7 May 2027 — Quarter 4 (6 January to 5 April 2027)
• 31 January 2028 — Final declaration (replaces Self Assessment)

What software do you need?

You must use HMRC-recognised MTD-compatible software. Spreadsheets alone do not qualify. The most practical options for UK sole traders are:

• Xero — cloud-based, strong MTD integration, used widely by accountants and bookkeepers
• QuickBooks Online — popular with sole traders, good mobile app, MTD-ready
• FreeAgent — built specifically for freelancers and sole traders

If you currently manage everything in Excel, you will need either a compliant software package or bridging software that connects your spreadsheet to HMRC's systems. The bridging route is generally more expensive and less reliable long-term.

What do you need to do right now?

If you earn over £50,000 and have not yet set up for MTD ITSA, work through these five steps:

What happens if you miss the deadline?

The grace period for 2026/27 is real but narrow. Here is exactly what is and is not covered:

• Late quarterly updates — no penalty points in 2026/27 ✓ — HMRC will not issue points for missed quarterly deadlines during the first year only
• Late Final Declaration — penalties apply in full ✗ — your Final Declaration due 31 January 2028 is not covered by the grace period
• Late tax payment — penalties apply in full ✗ — if you owe tax and pay late, late payment penalties and interest apply from day one (with a 30-day extended window in 2026/27 only)

From 2027/28 the full points-based system applies to everything. Miss four quarterly deadlines across the year and you receive a £200 penalty, plus £200 for every further late submission. Points reset only after filing on time for 12 consecutive months.

Why this matters beyond the deadline

MTD ITSA is not just a compliance change. It is a shift in how HMRC monitors self-employed income. With quarterly data flowing from every qualifying taxpayer, HMRC will have a real-time picture of the UK's self-employed sector that it has never had before.

For you as a sole trader, the upside is that your tax position will no longer be a January surprise. With good bookkeeping software and a simple monthly routine, you will know your profit, your estimated tax bill, and your financial position throughout the year.

The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Within two years, the vast majority of self-employed people in the UK will be within scope. Getting set up now puts you well ahead of that curve — and ahead of the accountants and bookkeepers who will be swamped with last-minute sign-ups in 2027.