Making Tax Digital Self Employed 2026 | MTD Sole Trader Guide | LOYALS London
Making Tax Digital — April 2026

Making Tax Digital for Self-Employed:
Everything You Need to Know

From April 2026, 864,000 sole traders and landlords must keep digital records and file quarterly updates to HMRC. No more annual returns filed in a January panic. Here is exactly what is changing, who is affected, and how to get ready.

⚠️ HMRC is already sending letters to 864,000 affected taxpayers
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Who Is Affected — MTD Thresholds Explained

MTD for Income Tax is being rolled out in three phases based on your qualifying income. Your start date depends on your combined gross turnover from self-employment and property — before expenses are deducted.

Phase 1 — Starting Now
6 April 2026
£50,000+gross income from self-employment and/or property

Based on your 2024/25 tax return. HMRC is writing to affected individuals now. Approximately 864,000 sole traders and landlords fall into this first group.

Phase 2
6 April 2027
£30,000+gross income from self-employment and/or property

Those with qualifying income between £30,000 and £50,000 join the following year. Based on your 2025/26 tax return figures.

Phase 3
6 April 2028
£20,000+gross income from self-employment and/or property

Announced in the 2025 Spring Statement, extending MTD to those with qualifying income over £20,000. The precise timing within this Parliament was confirmed.

✓ What Counts Towards the Threshold

Self-employment turnover (gross, before expenses)

UK rental income (gross rent received)

Overseas property income

Combined total of all trading + property sources

Income from multiple self-employments added together

✗ What Does NOT Count

PAYE employment wages and salary

Pension income

Dividends and investment income

Savings interest

Capital gains

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Important: It's Turnover, Not Profit

The £50,000 threshold is based on your gross income before expenses, not your taxable profit. A sole trader with £55,000 turnover and £30,000 expenses (profit of £25,000) must still join MTD in April 2026. Similarly, if you earn £35,000 from self-employment and receive £20,000 in rental income, your combined qualifying income is £55,000 — even though each source is below £50,000 individually.

What Changes From Self Assessment?

MTD does not change how much tax you pay — it changes how and when you report your income and expenses to HMRC. Here is a side-by-side comparison.

Feature Current Self Assessment MTD for Income Tax (from 2026)
How often you report Once a year by 31 January Four quarterly updates + Final Declaration
Record keeping Paper or digital — your choice Must be digital using HMRC-recognised software
How you submit HMRC online portal or paper form Through compatible software only — no manual entry on HMRC website
What you report quarterly Nothing during the year Income and expense totals for each 3-month period
Year-end filing Full Self Assessment return Final Declaration (includes all income: PAYE, dividends, savings)
Year-end deadline 31 January 31 January (unchanged)
Late filing penalties £100 immediate, escalating Points-based: 1 point per late submission, £200 at 4 points
Tax visibility Only know your liability after filing Running estimate of tax owed updated each quarter
Multiple businesses One return covers everything Separate quarterly update for each trade and property business

Not Sure If You're Affected?

HMRC has launched an interactive tool to check whether you fall within scope of MTD for Income Tax. Alternatively, book a free call with LOYALS and we will review your 2024/25 figures and tell you exactly where you stand.

Check My MTD Status — Free →

Quarterly Reporting — Deadlines & What to Submit

Each quarter, you submit a summary of your business income and expenses for that period through compatible software. These are not extra tax returns — they are running updates that HMRC uses to estimate your tax position throughout the year.

Quarter 1
7 August 2026

Covers 6 April – 5 July

First ever MTD quarterly update

Quarter 2
7 November 2026

Covers 6 July – 5 October

Any Q1 corrections auto-included

Quarter 3
7 February 2027

Covers 6 October – 5 January

Peak season for many trades

Quarter 4
7 May 2027

Covers 6 January – 5 April

Final quarterly update of the year

Final Declaration
31 January 2028

Full year 2026/27 confirmed

Replaces annual Self Assessment return

Each quarterly update contains your total income received and expenses paid during that period. Year-end adjustments like capital allowances and accounting adjustments are made in the Final Declaration, not in the quarterly updates. If you have more than one business or a rental property alongside self-employment, you submit a separate quarterly update for each income source.

What Happens If You Miss a Deadline?

MTD replaces the old Self Assessment penalty system with a new points-based approach. Occasional mistakes are treated more leniently, but persistent late filing adds up quickly.

Late Submission Penalty Points — How They Build Up

For quarterly filers, the penalty threshold is 4 points. Each late submission earns one point.

1
→
2
→
3
→
4
→
£200

Once at the threshold, every subsequent late submission also triggers a £200 penalty. Points reset to zero only after 12 months of on-time quarterly filing and all overdue submissions have been received by HMRC.

Grace Period for Year One (2026/27)

HMRC has confirmed that taxpayers mandated from April 2026 will not receive penalty points for late quarterly updates during the first year. However, this grace period does not cover the Final Declaration due 31 January 2028 — late filing of that will still earn a penalty point.

Late Payment Penalties (Separate from Points)

If you pay tax late, separate penalties apply: 3% of the outstanding amount at day 15, an additional 3% at day 30, then 10% per year from day 31 until paid in full — plus interest. These apply from the start with no grace period for late payment.

Choosing MTD-Compatible Software

You cannot submit MTD updates by manually entering figures into the HMRC website. You must use HMRC-recognised compatible software. There are three main options.

📱

Full Accounting Software

Cloud-based packages like Xero, QuickBooks, or FreeAgent that handle everything: bank feeds, expense tracking, invoicing, and MTD submissions. Best for businesses wanting a complete solution.

£12–£50/month typical
🔗

Bridging Software

Connects your existing spreadsheets to HMRC's MTD system. You continue using spreadsheets as you do now, and the bridging tool submits the data digitally. A valid option for simpler businesses.

£5–£20/month typical
🤝

Through Your Accountant

LOYALS handles software selection, setup, and quarterly submissions on your behalf. You send us your bank statements each quarter and we take care of everything else — the simplest route to compliance.

Included in our packages

HMRC publishes a Software Finder tool listing all recognised products. If you already use accounting software for MTD for VAT, it is likely the same provider offers an MTD for Income Tax module. LOYALS helps clients choose the right software based on their business complexity, existing systems, and budget.

How LOYALS Gets You MTD Ready

Hover or tap each card to see how we handle every aspect of MTD compliance for you.

⚙️

Software Setup & Training

We choose, configure, and connect your software to HMRC

Tap for details →

Software Setup & Training

  • Software recommendation for your needs
  • Full configuration and bank feed setup
  • Agent Services Account authorisation
  • Hands-on training (or we handle it all)
  • Ongoing technical support
📊

Quarterly Submissions

We prepare and file all four quarterly updates for you

Tap for details →

Quarterly Submissions

  • Income and expense categorisation
  • Bank statement reconciliation
  • Quarterly update submission to HMRC
  • Error checking before each filing
  • Deadline monitoring and reminders
🗂️

Digital Record-Keeping

Compliant records maintained throughout the year

Tap for details →

Digital Record-Keeping

  • Digital expense tracking system
  • Receipt capture and storage
  • Running categorisation of transactions
  • Audit-ready records year-round
  • Compliant with MTD digital requirements
📋

Final Declaration

Year-end filing with all adjustments and reliefs claimed

Tap for details →

Final Declaration

  • Capital allowances calculations
  • Year-end accounting adjustments
  • All income sources consolidated
  • Tax liability calculation and review
  • Payment on Account management

All MTD Compliance Included in Our Packages

No hidden MTD fees. Software setup, quarterly filing, digital records and the Final Declaration are all part of the service.

£150/month
Premium Accounting
£600/year
Self Assessment (£50K+ turnover)
MTD software setup & configuration
All four quarterly updates filed
Digital record-keeping maintained
Final Declaration submitted
Tax optimisation and expense review
HMRC correspondence handled
Payment on Account management
Year-round chartered accountant support

MTD Guidance for Your Industry

MTD affects self-employed workers across every sector. Here is how it intersects with the specific requirements of the industries we serve.

🏗️

Construction Workers (CIS)

CIS deductions, subcontractor income, and MTD quarterly reporting work together. We handle the overlap so your CIS returns and MTD updates are both compliant.
💻

Freelancers & Consultants

Variable income, multiple clients, working-from-home expenses — MTD adds structure to freelance accounting. We set up systems that make quarterly reporting effortless.
🔧

Tradespeople

Plumbers, electricians, carpenters — if you are self-employed and earning over £50,000, MTD applies from April 2026. We make the transition painless.
🍽️

Hospitality Sole Traders

If you run a restaurant, cafe, or catering business as a sole trader, MTD quarterly reporting sits alongside VAT, tips compliance, and seasonal cash flow.

Frequently Asked Questions About MTD

Answers to the most common Making Tax Digital questions from self-employed sole traders and landlords.

Do I need Making Tax Digital as a sole trader?+
You must use MTD from April 2026 if your combined gross income from self-employment and property was over £50,000 in the 2024/25 tax year. From April 2027, the threshold drops to £30,000 and from April 2028 it drops to £20,000. Qualifying income means your total turnover before expenses — not your profit. PAYE employment income, dividends and pensions do not count towards this threshold. If you are unsure, HMRC has an interactive online tool to check, or book a free call with LOYALS and we will review your figures.
What is the MTD threshold for self-employed in 2026?+
From 6 April 2026, MTD is mandatory for sole traders and landlords whose combined gross income from self-employment and property exceeds £50,000. This figure comes from your 2024/25 Self Assessment return. HMRC is writing to the 864,000 individuals they expect to be in scope based on their filed returns. If you have not yet filed your 2024/25 return, you should do so urgently so HMRC can assess your status correctly.
What are the quarterly reporting deadlines?+
Quarterly updates follow tax year quarters and are due on the 7th of the month after each quarter ends. For the 2026/27 tax year: Q1 (6 April – 5 July) is due by 7 August 2026; Q2 (6 July – 5 October) by 7 November 2026; Q3 (6 October – 5 January) by 7 February 2027; Q4 (6 January – 5 April) by 7 May 2027. Your Final Declaration — which replaces the annual Self Assessment return — is due by 31 January 2028. You can also choose calendar quarter reporting (ending 30 June, 30 September, 31 December, 31 March) with the same 7th-of-the-month deadlines.
What happens if I miss an MTD quarterly deadline?+
MTD uses a penalty points system. Each late quarterly submission earns one point. Once you reach 4 points, HMRC charges a £200 penalty, and every subsequent late submission also triggers £200. However, HMRC has confirmed a soft landing: taxpayers mandated from April 2026 will not receive penalty points for late quarterly updates during the 2026/27 tax year. This grace period does not cover the Final Declaration due 31 January 2028 — late filing of that will still earn a point. From the second year onwards, all quarterly deadlines carry penalty point consequences.
What software do I need for MTD?+
You must use HMRC-recognised compatible software. You cannot submit quarterly updates manually through the HMRC website. Options include full accounting packages such as Xero, QuickBooks, and FreeAgent, or bridging software that links your existing spreadsheets to HMRC's systems. Some banks offer free accounting software to business current account holders. HMRC publishes a Software Finder tool listing all recognised products. LOYALS handles software selection, setup, and ongoing submissions for all our MTD clients.
What income counts towards the MTD threshold?+
Qualifying income is your combined gross income (turnover before expenses) from all self-employment sources and property rental income, including overseas property. PAYE wages, pension income, dividends, savings interest, and capital gains do not count. For example, if you earn £35,000 from self-employment and £20,000 from rental property, your qualifying income is £55,000 — putting you in the April 2026 phase. Each source is counted at gross level before any expense deductions.
Will MTD replace my Self Assessment tax return?+
Yes, eventually. Once you are within MTD, the quarterly updates plus a Final Declaration replace the traditional Self Assessment return. The Final Declaration combines all your income sources — including PAYE, dividends, and savings interest — to calculate your total tax liability. However, there is a transitional year: for 2025/26 you will still file a standard Self Assessment return (by January 2027), and you start MTD filing for the 2026/27 year onwards. This means January 2027 is your last traditional Self Assessment.
What if my income drops below the threshold?+
You can exit MTD only when your qualifying income falls below the threshold for three consecutive tax years. This three-year rule prevents taxpayers from frequently joining and leaving as income fluctuates. So if you earned £52,000 in 2024/25 and started MTD in April 2026, you would need to earn below £50,000 in three consecutive years before you could stop using the MTD system. If your business ceases permanently, you can stop MTD from that point.
Can I still use spreadsheets?+
Yes, but you need bridging software to submit from a spreadsheet. You cannot email or manually upload spreadsheet data to HMRC. Bridging software connects your spreadsheet to HMRC's MTD API to submit the quarterly data digitally. This is a valid route for sole traders who prefer their existing workflow, though full accounting software with bank feeds and automatic categorisation often provides a smoother experience and fewer errors — especially when filing four times a year instead of once.
How does MTD affect CIS construction workers?+
Self-employed CIS subcontractors with qualifying income over £50,000 must join MTD from April 2026, just like any other sole trader. Quarterly updates must include your gross income from construction work and your allowable expenses. CIS deductions already made by contractors are accounted for in your Final Declaration when calculating the tax you actually owe. The quarterly updates show gross income and expenses, while the CIS deduction offset happens at the year-end stage. LOYALS specialises in both CIS and MTD compliance for construction workers across London.
Are partnerships included in MTD?+
Not yet. The current MTD for Income Tax regulations cover only sole traders and individuals with property income. HMRC has said MTD will be extended to partnerships in the future, but no date has been announced. Only individual sole traders and landlords are included in the April 2026, April 2027, and April 2028 phases. If you operate as a partner in a general partnership, your partnership income does not currently bring you into MTD scope.
How much does MTD compliance cost?+
Software costs range from free (some banks offer free accounting tools with business current accounts) to £15–£50 per month for packages like Xero, QuickBooks, or FreeAgent. If you use an accountant, LOYALS includes full MTD compliance — software setup, digital record-keeping, all four quarterly submissions, and the Final Declaration — in our £150/month Premium Accounting package and our £600/year Self Assessment service for those earning over £50,000. There are no hidden fees for MTD, and we are available seven days a week including weekends.

Start Preparing Now — Beat the April 2026 Deadline

We have helped 500+ businesses navigate HMRC requirements. Making Tax Digital is the biggest change to self-employed tax in a generation. Let us make the transition simple for you.

Book Your Free MTD Consultation →

Or call us directly: 07450 258975  |  kris.nick@loyals.uk

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Serving self-employed sole traders and landlords across all London boroughs: Westminster, Camden, Islington, Hackney, Tower Hamlets, City of London, Southwark, Lambeth, Wandsworth, Hammersmith & Fulham, Kensington & Chelsea, Greenwich, Lewisham, Newham, Barnet, Brent, Ealing, Enfield, Haringey, Hounslow, Redbridge, Richmond, Waltham Forest, Croydon, Bromley, and beyond. LOYALS Accountants & Business Consultants, 39-41 North Road, King's Cross, London N7 9DP.