MTD for Self-Employed: Complete Guide for Sole Traders 2026

Making Tax Digital (MTD) for self-employed individuals requires sole traders to keep digital records and submit quarterly updates to HMRC using compatible software. MTD for Income Tax Self Assessment (MTD ITSA) begins 6 April 2026 for those with gross income over £50,000, and 6 April 2027 for those earning over £30,000.

This guide covers everything self-employed sole traders need to know about MTD compliance.

When Does MTD Apply to You?

MTD applies based on your gross self-employment income (turnover), not your profit:

| Your Gross Income | MTD Start Date | First Quarterly Submission | |-------------------|----------------|---------------------------| | Over £50,000 | 6 April 2026 | 7 August 2026 | | Over £30,000 | 6 April 2027 | 7 August 2027 | | Under £30,000 | TBC (likely 2028+) | Not yet required |

What Counts as Gross Income?

Gross income means your total business receipts before deducting any expenses:

| Included in Gross Income | NOT Included | |-------------------------|--------------| | All sales and fees received | Business expenses | | Client payments | Cost of goods sold | | Grants and subsidies | Equipment purchases | | Interest on business accounts | Your salary/drawings |

Example: You invoice £60,000 in the tax year but spend £15,000 on expenses. Your gross income is £60,000, so you must comply from April 2026—even though your profit is only £45,000.

Combined Income Sources

If you have multiple income sources, they're combined to determine whether you meet the threshold:

• Self-employment income + property income = combined threshold
• Multiple self-employments are added together

Example: You earn £35,000 from freelancing and £20,000 from rental property. Combined gross income: £55,000. You must comply from April 2026.

Learn more: MTD Income Thresholds Explained

What MTD Requires from Self-Employed

1. Digital Record Keeping

You must maintain digital records of all business transactions:

| Record Type | What to Track | |-------------|---------------| | Income | Date, amount, source of each payment received | | Expenses | Date, amount, category of each business expense | | Bank transactions | All business account activity |

"Digital" means using software—not paper records or manual spreadsheets without MTD-compatible submission capability.

2. HMRC-Recognised Software

Your software must be on HMRC's list of recognised MTD software. The software must:

• Store records digitally
• Calculate your tax position
• Submit quarterly updates to HMRC via the MTD API
• File your final declaration

TaxFolio is HMRC-recognised MTD software built for UK self-employed individuals.

3. Quarterly Submissions

Submit summaries of your income and expenses four times per year:

| Quarter | Period | Deadline | |---------|--------|----------| | Q1 | 6 April – 5 July | 7 August | | Q2 | 6 July – 5 October | 7 November | | Q3 | 6 October – 5 January | 7 February | | Q4 | 6 January – 5 April | 7 May |

Each submission includes:

• Total income received during the quarter
• Total expenses by category
• Running totals for the tax year

Learn more: MTD Quarterly Submissions Guide

4. Final Declaration

After the tax year ends, submit a final declaration by 31 January confirming:

• Total income for the year
• All allowable expenses
• Adjustments and reliefs
• Your final tax liability

This replaces the traditional Self Assessment return.

What Changes for Self-Employed Under MTD

| Aspect | Before MTD | Under MTD | |--------|-----------|-----------| | Record format | Paper or digital | Digital only | | Reporting frequency | Once per year | 4 quarterly + final declaration | | Submission method | Online or paper | MTD software via API | | Software | Optional | Required (HMRC-recognised) | | Deadlines | 31 January only | 7 Aug, 7 Nov, 7 Feb, 7 May, 31 Jan |

What Stays the Same

MTD changes how you report, not what you owe:

• Tax rates remain the same (20%, 40%, 45%)
• Allowable expenses remain the same
• National Insurance calculations unchanged
• Payment dates unchanged (31 January, 31 July)
• Personal Allowance unchanged (£12,570)

Self-Employment Expenses Under MTD

Your quarterly submissions include expenses by category. Common self-employment expense categories:

| Category | Examples | |----------|----------| | Cost of goods sold | Materials, stock, subcontractors | | Office costs | Stationery, software, phone (business portion) | | Travel | Mileage, public transport, parking | | Professional fees | Accountant, legal, consultants | | Marketing | Advertising, website, business cards | | Premises | Rent, utilities, business rates | | Staff costs | Wages, employer NI, pensions | | Financial costs | Bank charges, card fees, interest | | Home office | Simplified expenses or actual costs |

Simplified Expenses for Self-Employed

MTD-compatible software should support HMRC's simplified expenses:

Vehicle Mileage: | Miles | Rate | |-------|------| | First 10,000/year | 45p per mile | | Over 10,000 | 25p per mile |

Home Office: | Hours worked from home/month | Flat rate | |------------------------------|-----------| | 25-50 hours | £10/month | | 51-100 hours | £18/month | | 101+ hours | £26/month |

Learn more: Working From Home Tax Relief | Mileage Allowance Guide

MTD Timeline for Self-Employed

If Your Income Exceeds £50,000 (First Wave)

| Date | Action | |------|--------| | Now | Choose MTD software, connect bank accounts | | Before 6 April 2026 | Ensure digital record-keeping is established | | 6 April 2026 | MTD begins—start recording digitally | | 7 August 2026 | First quarterly submission (Q1: 6 Apr – 5 Jul) | | 7 November 2026 | Q2 submission | | 7 February 2027 | Q3 submission | | 7 May 2027 | Q4 submission | | 31 January 2028 | Final declaration for 2026/27 |

If Your Income Exceeds £30,000 (Second Wave)

| Date | Action | |------|--------| | 2026 | Observe first wave, choose software | | Before 6 April 2027 | Establish digital record-keeping | | 6 April 2027 | MTD begins | | 7 August 2027 | First quarterly submission | | 31 January 2029 | Final declaration for 2027/28 |

How to Prepare for MTD

Step 1: Check Your Income

Review your gross self-employment income for recent tax years:

• 2023/24: Check your SA103 turnover figure
• 2024/25: Estimate based on current trading

If you're close to a threshold, err on the side of caution and prepare.

Step 2: Choose MTD Software

Select HMRC-recognised software that suits your needs:

| Consider | Questions to Ask | |----------|------------------| | Bank connections | Does it connect to my bank via Open Banking? | | Ease of use | Is it simple enough for my needs? | | Expense categorisation | Does it auto-categorise transactions? | | Price | What's the annual cost? | | Support | Is UK-based help available? |

Compare MTD software options

Step 3: Connect Your Bank

Most MTD software uses Open Banking to import transactions automatically:

1. Link your business bank account(s)
2. Transactions import daily
3. Categorise as income or expenses
4. Software calculates totals for submission

Step 4: Establish Digital Records

Before MTD starts:

1. Import historical transactions (if software supports it)
2. Categorise existing 2025/26 transactions
3. Set up expense categories matching HMRC requirements
4. Practice categorising new transactions

Step 5: Submit a Test Quarter

If your software offers it, submit a test quarterly update:

1. Review the submission process
2. Understand what data is sent to HMRC
3. Identify any gaps in your records
4. Build confidence before the real deadline

Common Self-Employed MTD Questions

Do I need an accountant for MTD?

For straightforward self-employment, MTD software handles everything. Consider an accountant if you have:

• Multiple businesses
• Complex tax situations
• Limited time for administration
• Preference for professional oversight

Many accountants offer MTD support services—they can review your submissions before filing.

What if my income fluctuates around the threshold?

The threshold is based on income in the previous tax year. If your 2025/26 income exceeds £50,000, you must comply from April 2026 regardless of what you earn in 2026/27.

If your income drops below the threshold for two consecutive years, you can leave MTD.

Can I use my phone for MTD?

Yes. Most MTD software has mobile apps for:

• Capturing receipts
• Reviewing transactions
• Checking your tax position
• Submitting quarterly updates (some apps)

TaxFolio works on iOS and Android.

What about cash transactions?

Record cash income and expenses the same as bank transactions:

1. Keep receipts for cash expenses
2. Record cash income when received
3. Enter manually in your MTD software
4. Include in quarterly submissions

A separate business bank account makes record-keeping simpler.

I'm already using accounting software—do I need to change?

Check if your current software is MTD-recognised:

• Yes, MTD-ready: You may just need to enable MTD features
• Not MTD-ready: Switch to recognised software before April 2026

HMRC's recognised software list

MTD Penalties for Self-Employed

Late quarterly submissions incur penalty points:

| Late Submissions | Points | Penalty | |------------------|--------|---------| | 1st late | 1 | None | | 2nd late | 2 | None | | 3rd late | 3 | None | | 4th late | 4 | £200 | | 5th+ late | 5+ | £200 each |

Points expire after 24 months of on-time submissions (8 consecutive quarterly updates).

Avoiding Penalties

1. Set calendar reminders 14 days before each deadline
2. Use software with automatic deadline notifications
3. Submit a few days early—don't wait until the deadline
4. Keep records current weekly, not quarterly

Self-Employed MTD Exemptions

You may be exempt from MTD if:

Digital Exclusion

You cannot use digital tools due to:

• Age
• Disability
• Remote location without internet
• Religious beliefs

Apply to HMRC for an exemption.

Below the Threshold

If your gross income is below the current threshold, MTD doesn't apply (though you can volunteer).

Ceasing Trading

If you stop self-employment, inform HMRC. You won't need to submit future MTD returns.

Example: Self-Employed MTD Year

Marcus: Freelance Web Developer

Gross Income: £65,000 (above £50,000 threshold) MTD Start: 6 April 2026

Q1 (6 April – 5 July 2026): | Item | Amount | |------|--------| | Client payments received | £18,500 | | Software subscriptions | £450 | | Home office (simplified) | £78 | | Travel | £320 | | Professional fees | £200 | | Q1 Profit | £17,452 |

Marcus submits this summary via TaxFolio by 7 August 2026.

Full Year Summary: | Quarter | Income | Expenses | Profit | |---------|--------|----------|--------| | Q1 | £18,500 | £1,048 | £17,452 | | Q2 | £16,200 | £890 | £15,310 | | Q3 | £14,800 | £1,120 | £13,680 | | Q4 | £17,500 | £942 | £16,558 | | Total | £67,000 | £4,000 | £63,000 |

Final Declaration (31 January 2028):

• Confirms total income: £67,000
• Confirms total expenses: £4,000
• Applies Personal Allowance and reliefs
• Calculates final tax liability

Get MTD-Ready with TaxFolio

TaxFolio is HMRC-recognised MTD software built for UK self-employed individuals:

• Open Banking — connects to all major UK banks via TrueLayer
• AI categorisation — transactions sorted automatically
• Quarterly submissions — one-click filing to HMRC
• Real-time tax calculations — see your liability throughout the year
• Deadline reminders — never miss a submission
• From £69.99/year — no monthly fees

Start your free 30-day trial and be ready for MTD before April 2026.