What self employed sole traders need to know to prepare for Making Tax Digital

For many sole traders, self assessment is something you deal with once a year. Usually in January. Often under pressure. Sometimes with a box of receipts and a sinking feeling. But that annual scramble is about to change.

From April 2026, Making Tax Digital (MTD) for Income Tax will become mandatory for self-employed people and landlords with qualifying  income of over £50,000 in the tax year 2024/25. One of the biggest shifts in personal tax reporting in decades, it will require affected taxpayers to keep digital records and submit quarterly updates using MTD compatible  software, followed by an end-of-year declaration. With lower income thresholds set to follow in the coming years, this change demands new habits, systems and routines, not just a new login with HMRC.

More than 20,000 people have already signed up to the HM Revenue & Customs pilot for MTD, showing that many sole traders are starting to prepare for what’s coming. It’s an early signal that awareness is growing, but for most people, the real shift will come when MTD moves from something they’ve heard about to something they have to live with day to day. And that’s when the change becomes real.

MTD for Income Tax is a fundamental shift in how millions of people manage their finances. Instead of one annual submission, businesses will move to a continuous reporting model, where what could feel like a daunting task becomes far more manageable, broken down into digestible, bite-sized chunks quarterly across the year.

Tax becomes something you engage with little and often, making it easier to stay on top of your numbers and reducing the stress that typically builds up around deadlines. Whilst that shift may take some sole traders time to adjust, it will afford them to better understand their overall financial position including their cash flow, profit and loss throughout the year and have a clearer view of what income tax they will need to pay, well ahead of the January deadline.

So what does it actually mean?

If you’re self-employed or a landlord with qualifying income above £50,000, you’ll need to keep digital records of income and expenses, submit quarterly updates, and complete an annual final declaration. Quarterly updates aren’t full tax returns, but they do require accurate, up to date records. In practice, that means moving away from spreadsheets and paper receipts and building regular financial routines.

Most sole traders now know MTD is coming, and many are starting to think about what it means for them. That said, a recent Intuit QuickBooks survey of 2,012 self assessment tax filers, highlighted that whilst many have already prepped themselves for MTD, more than one in ten (11%) are aware of the changes but haven’t yet begun preparing.

Time is of the essence

The good news is there’s still plenty of time. While accountants remain crucial, MTD works best when individuals themselves stay closer to their numbers through digital record keeping and regular reviews. Starting now allows founders to spread the change gradually, avoid last minute pressure, and build habits that make managing finances simpler in the long run.

Current filing behaviour offers a useful insight into how late people leave their self assessment. The Intuit QuickBooks survey found that around 83% of entrepreneurs complete their tax returns in December or January, with nearly a third submitting over the Christmas period. That last-minute rush likely happens because all the bookkeeping is pushed to the end of the year, rather than being done in- real time.

Making tax manageable

MTD offers a chance to change that pattern. Without new systems and habits, quarterly reporting could feel like four busy periods instead of one. But with the right setup in place, it can become a smoother, more predictable process that spreads the workload and removes the annual pressure spike.

You don’t need to overhaul everything overnight, but early, incremental changes make a big difference. Start by reviewing how you currently keep records. If you’re relying on spreadsheets or paper receipts, consider moving to a digital system that automatically captures income and expenses. Check whether your existing tools are MTD compatible, and begin building quarterly habits now.

A new way of working

As HMRC doesn’t provide software for MTD, you’ll need to use compatible third-party software to keep digital records of your income and expenses and store them in the correct format.

This means recording what you earn and spend, when it happens, and what type of income or expense it is. If you run more than one self-employed business, or also earn income from property, you’ll need to keep separate records for each.

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Every three months, those records are totalled up and sent to HMRC as a quarterly update through your MTD compatible software. At the end of the year, you’ll still make a final declaration to confirm your figures and include any non-business income you need to report.

There are different types of MTD ready software available. Some low-cost or free options cover the basics, while others offer more tools to help manage day-to-day finances. The important thing is choosing something that fits how you work, rather than paying for features you don’t need.

A smarter partnership

Accountants remain a vital part of the picture, especially when it comes to choosing the right software setup, understanding obligations and planning ahead. With MTD, the relationship will become even more collaborative. Rather than handing over a year’s worth of paperwork in January, businesses and advisors will work together more continuously. The earlier those conversations start, the smoother the transition will be.

It’s easy to see MTD as another administrative burden. But it also brings an opportunity. More regular visibility over income and expenses supports better decisions, tighter cash flow management and greater confidence in your numbers; something everyone can benefit from.

With April 2026 approaching, the message is simple: preparation now reduces disruption later. Those who start adapting their systems and habits today will be far better placed to navigate the change calmly, and keep their focus where it matters most: growing their business.