Self Assessment is changing for people brought into Making Tax Digital for Income Tax (MTD). From 6 April 2026, MTD becomes mandatory for sole traders with qualifying income over £50,000, with further phases from 6 April 2027 and 6 April 2028. If you freelance, contract, drive, build, design or sell as a sole trader, the change adds digital records and quarterly updates while retaining one annual tax return.
The headline: digital records, quarterly updates, and one annual tax return through compatible software. This guide covers who is mandated and when, what the quarterly rhythm actually looks like, what "digital records" means in practice, and how to get ready without buying into a big accounting suite you do not need.
Who Is Mandated, and When
Qualifying income is your gross self-employment turnover — before any expenses — plus any gross rental income. It is not profit. HMRC measures it from the tax return filed two years before each start date:
| From | You are in MTD if gross income exceeds |
|---|---|
| 6 April 2026 | £50,000 (on your 2024–25 return) |
| 6 April 2027 | £30,000 (on your 2025–26 return) |
| 6 April 2028 | £20,000 (announced; on your 2026–27 return) |
Remember the combination rule: a plumber with £40,000 of trade turnover and £15,000 of rent has £55,000 of qualifying income and is mandated from day one. Our threshold guide works through more examples, including exemptions for the digitally excluded.
The New Rhythm: What You File and When
- Quarterly updates — a digital summary of your business income and expenses for the year so far, due by 7 August, 7 November, 7 February and 7 May. These are running totals, not mini tax returns: no tax is calculated or due with them.
- Annual tax return — after the year ends you check the full-year figures, add reliefs, allowances and other income such as employment or dividends, and submit through compatible software by 31 January.
- Payments — unchanged. 31 January balancing payment and the usual payments on account.
If you run more than one trade, or a trade plus rental property, each business has its own quarterly cycle — see quarterly updates explained for deadlines, cumulative corrections and the calendar-quarter election.
What "Digital Records" Really Means
For every business transaction you must record the required details digitally in compatible software. Two practical points follow from HMRC's rules:
- The first digital record may be entered from a source document. A bank statement, invoice or receipt is supporting evidence; you may enter its details into your record-keeping software. The digital-link rule applies when an existing digital record moves between products.
- You do not need a big accounting suite. A spreadsheet can form part of your functional compatible software setup, usually with bridging software. Transfers between products must use a digital link such as an import, export or linked formula rather than copy-and-paste or re-keying.
For most one-person businesses, bank statements are an important source. An efficient workflow is to download the statement, use a tool such as BankScan AI to prepare an import file, review every extracted line and category, and import the checked result into your compatible record-keeping software. Automation can reduce re-keying and errors, but compliance depends on the complete software and record-keeping workflow. HMRC's digital-record guidance explains the rules.
Five Things to Do Before April
- Check your 2024–25 gross turnover (plus rent). Over £50,000 means you are in wave one — HMRC has been writing to affected taxpayers, but do not wait for a letter.
- Split business from personal banking. A dedicated business account can make records easier to review and reconcile.
- Choose your software path: full accounting package, or spreadsheet + bridging software. Verify anything against HMRC's recognised list on GOV.UK.
- Run a practice quarter now. Convert last quarter's statements, categorise, and see how your numbers look — before it counts.
- Understand the penalty points system so a bad month never snowballs into fines.
Prepare Your Business Statement Data
Upload a supported UK statement, then review every extracted row and suggested category against the source before importing relevant records into compatible software.
Start 7-day trial →Frequently Asked Questions
Is MTD replacing Self Assessment?
No. You still submit one tax return every year, but MTD adds digital record keeping and four quarterly updates, and requires the annual return to be submitted through compatible software. The normal 31 January return and payment deadline remains.
Do I pay tax four times a year under MTD?
No. Quarterly updates are cumulative summaries of income and expenses, not tax returns or payment demands. You still submit the annual tax return and pay by the normal deadlines, including payments on account where they apply.
I have an employed job and a side business — am I caught?
PAYE employment income does not count towards the threshold. What counts is gross self-employment turnover plus gross rental income. A £60,000 salary with £10,000 of freelancing stays out (for now); £52,000 of freelancing alone is in from April 2026.
Can I keep using my spreadsheet?
Yes — a spreadsheet can form part of your functional compatible software setup, usually with bridging software. You may enter the first digital record from a bank statement or receipt. If an existing digital record then moves between products, that transfer must use a digital link such as an import, export or linked formula rather than copy-and-paste or re-keying.
What if my income later drops below the threshold?
Your HMRC online account may let you opt out when you are eligible, including after qualifying income stays below the applicable threshold for three consecutive tax years. An amended earlier return can also change your position. Check HMRC's current guidance before opting out.
What should I actually buy to be compliant?
Possibly less than you think. A spreadsheet can form part of a functional compatible software setup, normally with bridging software, but the complete setup must create and store the required records and submit to HMRC. A statement converter can prepare source data for review; it does not make the workflow compliant by itself. Check GOV.UK's compatible-software list before committing to anything.
Last updated: 10 July 2026. This guide explains the Making Tax Digital rules as published by HMRC — always check GOV.UK for the latest official guidance. Read our digital record-keeping guide or browse all blog posts.