Making Tax Digital (MTD) is HMRC's plan to drag UK self-employment tax filing from paper into the cloud. From 6 April 2026, if you're self-employed and earn above £50,000, you'll be legally required to keep digital records and submit your tax quarterly using HMRC-approved software. The threshold drops to £30,000 in April 2027 and £20,000 in April 2028. Most UK sole traders will be in scope within three years.
This guide covers everything you need to know in plain English: who's affected, what changes, the penalties, what software qualifies, and a step-by-step checklist to get ready. If you'd rather just have an app that handles all of it, that's what we built Graft for.
What is Making Tax Digital?
MTD is the government's programme to digitise tax in the UK. The first wave (MTD for VAT) has been running since 2019 — VAT-registered businesses already file VAT returns through approved software.
The next wave is MTD for Income Tax Self Assessment (MTD ITSA), and it's the one that affects sole traders, landlords, and self-employed people. Instead of filing one big Self Assessment return in January, you'll file five things a year:
- Four quarterly updates — running totals of your income and expenses
- One final declaration at the end of the tax year — confirming the figures and paying what you owe
You also have to keep digital records — meaning your income, expenses, and (where relevant) mileage have to be logged in software, not on paper or in a spreadsheet.
Who has to comply, and when
MTD ITSA applies if you're self-employed and/or a landlord earning above the threshold from these sources combined.
Income thresholds and rollout dates
- From 6 April 2026: annual income over £50,000
- From 6 April 2027: annual income over £30,000
- From 6 April 2028: annual income over £20,000 (planned, subject to confirmation)
"Income" here means gross self-employment + property income — not profit. So if you turn over £55k laying bricks but only take £35k home after materials and tools, you're still in scope from April 2026 because turnover is the tested figure.
Partnerships, limited companies, and trusts are not in this wave. They're on different MTD timelines or under different rules.
Who's exempt
- People who can demonstrate it's "not reasonably practicable" to use digital tools (e.g. age, disability, location with no internet) — application required.
- Members of religious societies whose beliefs are incompatible with electronic communication.
- Insolvency proceedings.
- Sole traders earning under the threshold for that year.
Key dates
The first cohort (£50k+) follows this calendar:
- 6 April 2026 — MTD ITSA starts. First quarter (Q1) begins.
- 5 July 2026 — End of Q1.
- 7 August 2026 — Q1 quarterly update due. The first hard deadline.
- 5 October 2026 — End of Q2.
- 7 November 2026 — Q2 update due.
- 5 January 2027 — End of Q3.
- 7 February 2027 — Q3 update due.
- 5 April 2027 — End of Q4 (and tax year).
- 7 May 2027 — Q4 update due.
- 31 January 2028 — Final declaration due for tax year 2026/27.
Same pattern repeats every year. Mark 7 August 2026 in your calendar — that's the day MTD goes from theoretical to real for most people.
What you actually submit
Quarterly updates
Each quarter you submit running totals of:
- Income from self-employment
- Allowable business expenses
- Property income (if applicable)
These are cumulative — Q2's submission includes Q1's figures plus Q2's. By Q4 you've effectively built up the full year. The submission is automatic if you're using approved software — it pulls your logged data and posts it to HMRC's API.
Final declaration
At the end of the tax year (after 5 April), you confirm everything in your final declaration. This is where you also report:
- Other income (savings, dividends, employment, capital gains)
- Pension contributions, charity donations, other reliefs
- Final adjustments to your accounts
HMRC then calculates your final tax bill. You pay by 31 January following the tax year end (same as Self Assessment today).
Penalties for missing deadlines
HMRC is using a points-based penalty system:
- Each missed quarterly submission = 1 penalty point.
- Hit 4 points in any rolling 12-month period = £200 fine.
- Every additional missed submission after that = another £200.
- Points expire after 24 months of compliance (i.e. you have to file on time consistently to clear them).
On top of penalty points, late payment interest applies if you owe tax and miss the 31 January final-bill deadline. Interest is set at HMRC's standard rate, currently around 7.75%.
Or just use Graft.
Graft tracks your income and expenses as you work, then submits each quarterly update directly to HMRC in one tap. £6.99/month. No accountant needed.
Join Waitlist →What counts as approved software
HMRC publishes a list of "software compatible with Making Tax Digital for Income Tax" on gov.uk. Software has to:
- Connect to HMRC's MTD ITSA API.
- Send the required quarterly update data structure.
- Implement HMRC's fraud prevention headers (device fingerprinting, IP, timestamps).
- Maintain "digital links" — meaning data flows between tools digitally, not by manual re-keying.
Common options today include Sage, Xero, QuickBooks, FreeAgent, and the various trade-specific tools that integrate with them. Graft is built specifically for sole-trader tradespeople — combining job tracking with direct MTD submission.
What about spreadsheets?
You can technically use a spreadsheet — but only with bridging software that connects it to HMRC's API. Pure spreadsheet workflows (no bridge) are not compliant.
Do you need an accountant?
Honest answer: most sole traders don't, for MTD ITSA itself. The whole point of MTD is to standardise the data so that compliant software can do the heavy lifting. If your tax situation is straightforward — one self-employed trade, no property, no VAT, no payroll — software is enough.
You probably do want an accountant if any of this applies:
- You're VAT-registered.
- You have multiple income streams (employed + self-employed + property).
- You're considering switching to a limited company.
- You have complex deductions (home office, vehicle apportionment, capital allowances on big purchases).
- HMRC has flagged something on your account.
The typical accountant fee for a sole trader Self Assessment is £300–£800/year. Quarterly MTD bumps it higher. Software like Graft (£6.99/month = £83.88/year) is genuinely a cheaper alternative if your tax is simple.
Step-by-step: getting MTD-ready before April 2026
- Check whether you're in scope. Look at your last full year's self-employment and property income. Over £50k? You're in from April 2026.
- Pick approved software. Cross-reference against the gov.uk compatible-software list. Look for trade-specific tools if you're a tradesperson.
- Get your UTR ready. Your Unique Taxpayer Reference is on your Self Assessment statements. You'll need it to authorise software with HMRC.
- Sign up for MTD with HMRC. The HMRC Online Services portal has an MTD ITSA enrolment page. You can sign up before April 2026 voluntarily.
- Start logging digitally now. Don't wait until April. Start using your chosen software for jobs, expenses, and mileage from day one — you'll have clean data when MTD goes live.
- Set calendar reminders. 7 August, 7 November, 7 February, 7 May. Or let your software remind you.
- Plan for the cashflow. Your final tax bill is still due 31 January. MTD changes how you report, not when you pay.
Common mistakes
- Confusing turnover and profit. The £50k threshold is gross income, not net profit. Many tradespeople think they're under the threshold when they're not.
- Leaving it to the day before. Quarterly updates pull from the data you've logged. If you've logged nothing, the submission is wrong.
- Trying to use unsupported spreadsheets. A naked Excel file won't talk to HMRC. You'd need bridging software.
- Assuming your accountant does it for you. They might — but they'll also bill you for it. Software handles it cheaper.
- Not exporting data when changing software. Make sure whatever you pick lets you get your data out. UK GDPR gives you the right to export.
FAQ
Does MTD mean I pay tax more often?
No. You report more often, but you still pay your final bill by 31 January following the tax year end. MTD doesn't change when you pay — it changes how you report.
What if my income drops below the threshold mid-year?
You stay in MTD for that tax year. Once below the threshold for a full year, you can opt out for the next year.
Can I still use a paper diary?
Yes — for your own records. But the official tax records have to be digital. Translate from diary to software at least quarterly.
What about CIS (Construction Industry Scheme)?
CIS is separate. If you're a CIS subcontractor, your gross income before tax deductions counts toward the MTD threshold. MTD-approved software should handle CIS deductions automatically.
What if HMRC's API is down on the day I submit?
Reasonable excuse rules apply. HMRC's API has an uptime SLA. If their system is down on the deadline, save the screenshot/error and you have grounds to appeal any penalty.
Where can I get the official rules?
HMRC's official guidance is at gov.uk/making-tax-digital. This guide summarises and translates — but the rules themselves come from there.