TaxCalc Blog

Handling your own tax returns in the era of MTD (a guide for UK sole traders)

If your income from self-employment (and any rental income too) is more than £50k, it’s highly likely that, as of April 2026, you’ll be included in the latest HMRC programme, Making Tax Digital for Income Tax (MTD IT or just MTD).

For UK sole traders, this marks a significant change in how tax records are kept and submitted.

Moreover, even if your self-employment/rental income is under £50k the thresholds are going to fall over the next couple of years (to just £20k by 2028) so it’s worth getting prepared.

So, if you’re one of the 215,000 ‘un-represented’ taxpayers (those who file their own Self Assessment Tax Return) included in the 2026 intake, you do need to take notice.

What does it mean if you’re ‘in MTD’ as a UK sole trader?

There are three main changes you need to prepare for.

• Digital record keeping is mandatory. Keeping paper receipts and invoices is out so you’ll either need a spreadsheet or a formal bookkeeping software to track transactions
• You’ll need to file quarterly updates directly to HMRC. Just the income, outgoings (and profit) but miss a deadline and you could get a fine. And you have to use some kind of software to file those submissions – there’s no direct filing to HMRC under MTD.  The filings are cumulative – so every filing will include everything in the tax year to date.
• At the end of the year, you will need to make a final submission. This is similar to the familiar tax return but includes several additional fields. Once again – there’s no free, HMRC version of this – you’ll need some software.

Why is this happening?

Making Tax Digital is a slightly confusing title. HMRC’s stated aim is to reduce the errors caused by manual record keeping, hence the mandatory digital record keeping. They also claim that it will help to reduce the tax gap – the disparity between what HMRC expect and what they actually receive in tax receipts.

So, it could more accurately be called ‘Make Bookkeeping Digital’ but that’s a discussion for another place and time.

What being ‘ready for MTD’ actually means

For sole traders, preparing for MTD doesn’t mean changing how you run your business overnight. In practice, it comes down to a few simple shifts. Your records need to be kept digitally rather than on paper, and your income and expenses need to be kept up to date throughout the year - not just pulled together at the last minute.

You’ll also need a way to submit quarterly updates to HMRC. This is a point that many of the mainstream radio adverts you hear right now seem to completely miss – yet it is crucial.

These aren’t full tax returns, but regular snapshots of how your business is performing. Many sole traders already do most of this work using spreadsheets, and HMRC rules allow you to continue doing so - provided you use compatible software (known as a ‘bridging solution’) to submit the figures.

Getting prepared early gives you time to settle into the rhythm of quarterly reporting, spot any gaps in your records, and decide whether you’re happy to continue filing yourself or would prefer professional support. Either way, the earlier you prepare, the less disruptive MTD is likely to feel.

How sole traders can prepare for MTD

Many Self Assessment taxpayers who have been happily self-filing for years may well seek out an accountant or bookkeeper as part of preparing for MTD to make sure deadlines aren’t missed and the correct incomes are included.

Aside from the fact that some accountants may not be open to a sudden influx of new clients (especially if their ‘traditional’ records aren’t in great shape) – it could have significant cost implications.

For those who want to continue to file themselves there are some very good options.

If you don’t need the features (or the expense) of a full bookkeeping package, the trusty spreadsheet is your best option.

All you need is TaxCalc’s simple and easy to use MTD Quarterly Filer and you can file those submissions straight from your laptop. And it’s only £24 per year for a single user!

And of course, TaxCalc’s market leading tax software for individuals will be able to handle the final tax return. It’s been used by 40,000 taxpayers across the world for over 20 years and it will handle your MTD Submissions too.

Find out more about the solution here.