Making Tax Digital for sole traders with qualifying income above £50,000 is already live, becoming mandatory from 6 April 2026, with the £30,000 threshold following in April 2027. If you are affected, you need MTD-compatible software, digital records, and four quarterly updates a year, but the actual process is simpler than most of the noise around it suggests.
Table of contents(9 sections)
Who has to do it, and when
HMRC’s eligibility guidance sets out three mandation waves based on your qualifying income from the relevant Self Assessment return:
- From 6 April 2026: qualifying income above £50,000 (based on your 2024–25 return)
- From 6 April 2027: qualifying income above £30,000 (based on your 2025–26 return)
- From 6 April 2028: qualifying income above £20,000 (based on your 2026–27 return)
HMRC writes to those above the threshold, but the onus is on you to verify your own position. Don’t wait for a letter.
Wave 1 alone covers more than 864,000 sole traders and landlords. Around 780,000 joined from April 2026; a further roughly 970,000 are expected from April 2027.
What counts as qualifying income
The threshold is calculated on gross income, not profit. Trading income and property income are both counted, and they’re added together even if each sits individually below the threshold. HMRC’s qualifying income guidance gives the example clearly: a sole trader with £27,000 of trading income and £26,000 of rental income has combined qualifying income of £53,000 and falls into Wave 1.
What does not count:
- Wages, salary, and employment income
- Dividends
- Pensions
- Partnership profit shares (confirmed in the gov.uk update of 29 January 2026)
Limited companies are entirely outside MTD for Income Tax. It applies to individuals filing Self Assessment.
What you actually have to do
MTD for Income Tax means three things: keeping digital records, sending quarterly updates, and submitting an end-of-year statement and final declaration.
Quarterly updates cover income and expenses for each three-month period. They are not tax returns, HMRC describes them as taking minutes through recognised software. The standard period runs 6 April to 5 July, though some customers can use calendar quarter periods (1 April to 30 June). The four submission deadlines each year are:
- 7 August
- 7 November
- 7 February
- 7 May
The 31 January Self Assessment deadline remains unchanged. Quarterly updates sit alongside your annual return; they don’t replace it. You also need to file one last Self Assessment return under the old system for the tax year before you start MTD.
Penalties: what the soft-landing year actually means
For Wave 1 (those mandated from April 2026), HMRC will not issue penalty points for missing quarterly update deadlines during the 2026–27 tax year. You still need to keep digital records and send updates before you can file your final return, but a late quarterly submission won’t trigger a penalty point this year.
The soft landing does not cover everything. Penalties for late annual tax returns and late payment of tax still apply even during the soft-landing period.
Wave 2 (£30,000+, from April 2027) and Wave 3 (£20,000+, from April 2028) have no soft landing. They enter the full points-based regime from day one: each missed quarterly or annual deadline earns one penalty point, and hitting four points triggers a £200 penalty plus £200 for each subsequent missed deadline.
Exemptions
An exemption removes the MTD obligation entirely, leaving you on standard Self Assessment. HMRC’s exemption guidance lists qualifying grounds including age, disability or health conditions, lack of reliable internet access, and religious beliefs incompatible with electronic communication.
Certain automatic exemptions apply to trusts, personal representatives, and people without a National Insurance number. If granted, you file Self Assessment as normal.
Software: what HMRC requires and what it costs
HMRC will not provide its own free software. You must use a product from HMRC’s recognised software list. Xero, QuickBooks, FreeAgent, Zoho Books, and Sage all appear on it, alongside a range of smaller and lower-cost tools.
The options broadly split into three routes.
Full accounting software handles your books and submits MTD updates in the same place. Xero, QuickBooks, and FreeAgent are the most common for sole traders. FreeAgent is also available free to sole traders who hold a business bank account with NatWest, Mettle, Royal Bank of Scotland, or Ulster Bank, with Mettle accounts requiring at least one transaction per month.
Free or near-free dedicated tools are worth knowing about. TaxNav is browser-based and HMRC-recognised for self-employment and property income, according to the RentalBux MTD Software Finder, but it is not completely free: it offers a free trial and paid plans.. Untied Free suits sole traders with a single income source.
Bridging software connects your existing spreadsheets to HMRC’s MTD API. Tools such as VitalTax and 123 Sheets take your quarterly totals from Excel or Google Sheets and submit them, without requiring you to change how you record income and expenses. This is the lowest-cost paid route for anyone already comfortable with spreadsheets.
Our analysis: the real annual cost of MTD compliance by bank account
| Route | Annual cost | What you get | Best for |
|---|---|---|---|
| FreeAgent (NatWest, Mettle, RBS, or Ulster Bank account) | £0 | Full accounting software, MTD quarterly updates, annual return prep | Sole traders banking with a qualifying NatWest Group bank |
| Bridging software (VitalTax or 123 Sheets) | £36/year (inc. VAT) | Spreadsheet-to-API submission, MTD quarterly updates without changing your records system | Spreadsheet-first sole traders on any bank |
| Xero Simple | £84/year (£7/month) | Full accounting software, MTD-ready, connects to most UK banks | Sole traders who want full double-entry bookkeeping |
| FreeAgent (no qualifying bank) | £228/year (£19/month, ex. VAT) | Full accounting software, same features as the free tier | Sole traders not banking with NatWest Group |
Prices checked October 2026. The figures above are sourced from FreeAgent’s pricing page for the free tier and from MTD.digital’s HMRC-recognised software list for bridging software costs; verify Xero’s current UK pricing at HMRC’s software page before committing. The key insight: your bank choice alone can determine whether MTD costs you nothing or over £200 a year.
How to sign up
HMRC’s sign-up guidance walks through the process. You’ll need a Government Gateway account and your software set up before you sign up, the connection between your software and HMRC’s API is made during sign-up. If you use an agent (accountant or bookkeeper), they can sign you up on your behalf.
New traders must file at least one Self Assessment return under the old system before joining MTD. If you started trading in 2025–26, you won’t be required to join until April 2027 at the earliest.
Verdict
If your gross qualifying income (trading plus property) topped £50,000 on your 2024–25 return, you’re already in Wave 1 and should be sending quarterly updates now. The £30,000 threshold arrives in April 2027. The software decision is the most consequential one you’ll make: if you bank with NatWest, Mettle, RBS, or Ulster Bank, FreeAgent is free and HMRC-recognised, which makes the cost question straightforward. If you don’t, bridging software keeps costs low if you’re happy with spreadsheets, and Xero or FreeAgent’s paid tier suit those who want a full accounting package. The quarterly updates themselves are genuinely light-touch once you’re set up, the main risk is simply not knowing you’re affected until a deadline passes.
