Making Tax Digital — What It Means for You as a Sole Trader
If you've heard the phrase “Making Tax Digital” and quietly hoped it didn't apply to you, you're not alone. It sounds complicated before you even get started, but the reality is more straightforward than the name suggests.
Here's what you actually need to know.
WHAT IS MAKING TAX DIGITAL?
Making Tax Digital (MTD) is HMRC's move towards digital record keeping. You will keep digital records of income and expenses and send quarterly summaries through compatible software, but you will still complete an annual Self Assessment tax return.
It's already in place for VAT-registered businesses. For sole traders and landlords, it is being introduced in stages based on qualifying income.
WHEN DOES IT AFFECT ME?
If your annual qualifying income from self-employment or property is over £50,000, MTD for Income Tax applies from 6 April 2026.
If it is over £30,000, it applies from 6 April 2027.
If your combined qualifying income is over £20,000, it applies from 6 April 2028.
If you're currently below these thresholds, you have more time — but getting your records in good shape now is easier than scrambling later.
WHAT WILL ACTUALLY CHANGE?
Under MTD, you'll need to keep digital records of income and expenses using compatible software, send four quarterly updates to HMRC and complete your annual Self Assessment tax return through compatible software.
The quarterly updates are not four additional tax returns. They are light-touch summaries, but they do mean staying on top of your numbers throughout the year rather than waiting until January.
WHAT SOFTWARE DO I NEED?
You'll need HMRC-compatible software to keep your records and submit updates. Options include Xero, QuickBooks and FreeAgent. A spreadsheet can still be used if it is connected to suitable bridging software.
Choosing the right system matters. The cheapest option is not always the most useful, and setting it up properly saves a lot of untangling later.
WHAT SHOULD I DO NOW?
Work out roughly what your qualifying income is and which threshold applies. Track income and expenses consistently, ideally every month, and consider whether your current system will cope with quarterly reporting.
You do not need to have everything sorted today. MTD feels much less daunting once you have a clear picture of where you are and what needs to change.
OR — LET SOMEONE ELSE HANDLE IT
For many sole traders, the real problem is not understanding MTD. It is finding the time and headspace to keep up with the admin while running the business.
Black Dog & Co provides bookkeeping, MTD support and practical financial reporting for sole traders and small owner-managed businesses.
For a clear monthly fee, I can keep your books up to date, handle the HMRC work included in your package and give you a straightforward quarterly summary of profit, cash, tax provision and anything needing attention.
If you would like to discuss your bookkeeping or MTD position, get in touch by email, WhatsApp or the enquiry form. A call is optional.
View services and pricing: https://www.blackdogandco.co.uk/services-pricing
Get in touch: https://www.blackdogandco.co.uk/contact
