A Sole traders guide to income tax
Let’s bust some myths about MTD for Income Tax while taking a deeper dive into what’s required.
From April 2026, if you’re a sole trader earning over £50,000, the way you file tax through Self Assessment will change. You’ll need to file it online, keep digital records, and send quarterly digital updates under Making Tax Digital (MTD) for Income Tax. It’s the biggest Income Tax shake-up in 30 years, but it’s not a new tax. It’s just a smarter way of reporting it. The good news? You still have time to get ready. This quick guide explains what’s changing, how to avoid last-minute chaos, and how to stay calm and compliant.
What is MTD for Income Tax? (The short version)
Right now: You keep records however you like and file one big tax return in January.
From April 2026: If your gross income is over £50,000 from sole trade or property income, you must:
1. Keep your records digitally.
2. Send quarterly updates (at least 4 times a year, although more frequently gives you better insight into your cash flow and tax liability).
3. Sign a final digital tax return at year-end.
That’s it!
Mostly harmless? The myths around MTD
At the Accountex North event in Manchester during September 2025, a lot of the conversation was about MTD confusion.
Many sole traders are hearing rumours that simply aren’t true. Let’s set the record straight by addressing some assertions.
I’ll have to pay tax four times a year.
Myth.
Your tax payment dates stay the same: 31 January and 31 July (with the latter date relevant only if you’re paying on account).
What changes is how often you update HMRC, not how frequently you pay.
We will send short quarterly summaries of income and expenses through software, not four full tax returns.
“I can wait until HMRC forces me to sign up.”
Myth.
You’ll need to take action yourself – HMRC won’t automatically do everything for you.
Waiting means you’ll lose control, facing possible penalties, and getting caught in the last-minute rush when support lines are at their busiest.
In short: don’t wait to be forced. Start on your own terms. It’s the simplest way to stay ahead and avoid the last-minute panic.
“It’ll be impossible to manage – too much work.”
| Myth.In fact, the opposite is true.By keeping things digital all year, our clients know their tax position – there’s no panic in January.Quarterly updates are short and cumulative, so by the time January rolls around, your return is 90% complete.Doing a little, often, saves a lot. “Software choice is limited or expensive. ”Myth.Perhaps that was once true. No longer. Freeagent is provided free with any Natwest business bank account for example. “It’ll break everything I already do for VAT.”Myth.It’s designed to align.HMRC confirmed that MTD for Income Tax follows the same digital approach as VAT.So, if you already file VAT digitally, you’re halfway there.Think of it as one joined-up digital system, not a second set of hoops to jump through. “It’s just another burden from HMRC.”Myth.HMRC’s goal is long-term simplification.As Jonathan Athow, Director General, Customer Strategy and Tax Design at HMRC, put it when speaking at Accountex: “Keeping records closer to real time helps people get their tax right.”The aim isn’t extra admin. It’s fewer mistakes, better forecasting, and less last-minute stress. |
Why acting now makes life easier (and ignoring HMRC doesn’t)
It makes sense to get started now, not in 2026. Waiting until HMRC forces you to switch risks stress, errors, and last-minute chaos.
Here’s what changes – and why it actually makes life easier
Same tax, fewer surprises. You’ll still pay tax on the same income by the same 31 January deadline – but you’ll have real-time visibility instead of a year-end scramble.
Short, simple updates. Quarterly submissions are quick summaries of income and expenses based on your bank statements, not full tax returns. Each update gives you an up-to-date tax estimate from HMRC.
Avoid the January panic. By keeping records digitally throughout the year in software, your tax return is essentially done already – no more shoe box of receipts.
Cleaner books and better cash flow. Digital records mean fewer mistakes, faster invoicing, and a clear picture of what to set aside each month. More control, less stress.
Early adopters are spreading the learning curve over months, not days – freeing up time to focus on business rather than compliance.
What’s changing now and what comes next?
MTD for Income Tax is simply a new, digital way to record and report what you already do.
The rollout is phased:
April 2026: £50,000+ gross income (sole traders and landlords)
April 2027: £30,000+ gross income
April 2028: £20,000+ gross income.
What you’ll need to do:
Keep your records digitally using MTD-compatible software.
Send updates at least quarterly (7 Aug, 7 Nov, 7 Feb, 7 May).
Submit your final return through the same software.
What stays the same:
Tax rules: You’re reporting the same income and expenses, and the same accounting record details.
Payment deadlines: Still 31 January and, if you pay on account, 31 July.
If you earn under £20,000, things won’t change for now, but you can still sign-up to MTD voluntarily and benefit from it.
HMRC’s done this before. Making Tax Digital for VAT was launched back in 2019, and hundreds of thousands of businesses now file smoothly through digital tools. This next phase extends that same simplicity to Income Tax.
