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As a VAT-registered business, familiarise yourself with the new Making Tax Digital (MTD) regulations for record-keeping and reporting.
Soon, sole traders and other Self-Assessment income reporters will also be required to follow MTD rules.
What is MTD for Income Tax?
The UK government is introducing Making Tax Digital (MTD) to digitise the whole tax process. It was started in 2019 for businesses with a certain VAT-taxable income.
It was planned to be in place for income tax self-assessment by April 2024. But this has been delayed until April 2026 due to different issues. This delay will also allow taxpayers more time to prepare for the changes.
MTD Compliance for Sole Traders: What You Need to Know?
We recommend signing up for Government voluntary scheme in advance. It will provide ample time to adapt to the new requirements before it becomes mandatory.
It is crucial to select MTD-approved software beforehand. The sooner you choose the software, the more time is available to familiarise yourself with its usage.
As different software options cater to various business needs, it is crucial to evaluate which solution aligns with your business needs carefully.
Are you looking for a cloud-based bookkeeping solution that meets your needs and MTD compliance?
We partner with top-rated software providers to offer various options for our clients. Need help choosing or training on the software?
Our team is ready to help and even offers discounted licences. Learn more about our partnerships and check out our FreeAgent webinar on our website.
Making Tax Digital for Income Tax Self-Assessment FAQs
What is the Cost of MTD-Compliant Software?
MTD free-to-use option from HMRC is not available. However, cloud bookkeeping software can save Sole Traders time and money.
Many business owners have already transitioned to MTD reports, getting cost-effective benefits such as quick and easy accounting, reduced risk of mistakes, and increased convenience.
Learn more about approved cloud bookkeeping software options through our recommendations.
Who will be Affected by MTD Rules?
Making Tax Digital (MTD) impacts self-employed and rental income earners with over £50,000 yearly gross income registered for Income Tax Self-Assessment.
Is Anyone Exempt from MTD?
Apply for MTD exemption if digital record keeping or submission to HMRC is not practical due to age, disability, location, or religious beliefs.
Justify to HMRC, and alternative solutions may be provided if accepted.
Is Self-Assessment Tax Return Still Mandatory After Signing up for MTD?
As of April 6, 2026, all taxable self-employed and property rental income must be reported through Making Tax Digital for ITSA unless exempt.
It is not currently a legal requirement. Taxpayers have the option to report this income through Self-Assessment.
When Should I Send MTD ITSA Data to HMRC?
Businesses within Making Tax Digital for ITSA must submit quarterly income and expense updates through their HMRC digital account. Failure to comply possibly result in penalty fines.
What are the Main Benefits of Making Tax Digital for ITSA?
As a sole trader, MTD simplifies compliance and streamlines tax reporting. By using MTD-compatible software, you can experience a range of benefits:
Maintaining digital records and submitting tax returns electronically
Improving cash flow visibility
Having access to AI technology
Being able to focus on financial performance
Spotting accounting errors sooner
Improved collaboration with your accountant and digitising receipts with mobile apps
Can an Accountant Act on My Behalf for MTD?
Get compliant with Making Tax Digital for ITSA by enlisting the help of a professional. An accountant can handle your recording and reporting requirements with MTD-compatible or bridging software.
Are there any Fines If One Doesn’t Comply with MTD?
A new and fairer penalty points method will be implemented for those who miss submission deadlines or fail to pay. It will result in a point. Accumulating points can result in a £200 fine.
The number of points required for a fine may vary. Late payment penalties will depend on the overdue amount of the tax bill.
