What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC's programme to digitalise the UK tax system. It requires businesses and individuals to keep digital records and submit tax information to HMRC directly from compatible software.
MTD for VAT has been in place since April 2019. MTD for Income Tax Self Assessment (MTD ITSA) — which affects sole traders and landlords — is being rolled out from April 2026.
When Does MTD Apply to Sole Traders?
The MTD ITSA rollout is staged by income level:
| Annual Qualifying Income | Mandated From |
|---|---|
| Over £50,000 | April 2026 |
| Over £30,000 | April 2027 |
| Over £20,000 | April 2028 (proposed) |
"Qualifying income" means income from self-employment and property combined, before expenses.
If your sole trader income is £30,000 per year, you will need to comply from April 2027.
What Does MTD ITSA Require?
Under MTD ITSA, sole traders must:
- Keep digital records of all business income and expenses throughout the year
- Submit quarterly updates to HMRC (four times per year, not annually)
- File an End of Period Statement (EOPS) after each accounting period confirming the figures
- Submit a Final Declaration (replacing the current Self Assessment tax return) to confirm your total tax liability
This replaces the current once-a-year Self Assessment return with an ongoing digital process.
What Are the Quarterly Updates?
Quarterly updates are summaries of your income and expenditure for each quarter, submitted digitally to HMRC. They are not tax payments — they are information submissions. HMRC will provide a running estimate of your tax liability based on these updates.
The quarters align with your accounting period. For most sole traders using a 5 April year-end, the submission deadlines would be:
- Q1 (April–June): by 5 August
- Q2 (July–September): by 5 November
- Q3 (October–December): by 5 February
- Q4 (January–March): by 5 May
Missing quarterly submissions will attract penalties.
What Software Do You Need?
HMRC does not provide its own MTD software. You must use HMRC-recognised software that supports MTD ITSA. This includes:
- Full accounting packages like QuickBooks, Xero, and FreeAgent
- Bridging software that connects your existing records to HMRC
- Specialised self-employment apps
Check HMRC's list of compatible software at gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax.
Does MTD Affect How You Invoice?
MTD itself does not change invoice format requirements. However, because your income records must be kept digitally, using invoicing software that integrates with your accounting records becomes much more important.
If you currently create invoices in Word and manually enter them into a spreadsheet, you will need to change your process. Using software that tracks both invoices and payments simplifies the digital records requirement significantly.
What About MTD for VAT?
MTD for VAT has been mandatory since April 2022 for all VAT-registered businesses (it was mandatory from April 2019 for most, with a one-year delay for complex cases). If your turnover is above the VAT threshold (£90,000), you are already subject to MTD for VAT and should be using compatible software for your VAT returns.
Penalties Under MTD ITSA
HMRC is introducing a points-based penalty system for MTD ITSA:
- Each late quarterly submission earns a penalty point
- Accumulate too many points (threshold varies by submission frequency) and you receive a £200 fixed penalty
- Points expire after 24 months of full compliance
This replaces the current fixed penalty system for late Self Assessment returns.
Preparing for MTD ITSA: Action Steps
- Confirm when you are affected — check if your annual income will exceed £50,000 before April 2026, or £30,000 before April 2027
- Choose MTD-compatible software now — don't wait until the deadline
- Start keeping digital records immediately — the habit is more valuable than the tool
- Talk to your accountant — your accountant's workflow will also change under MTD, and aligning early avoids last-minute problems
FlashBill and MTD
FlashBill keeps digital records of all your invoices and payments. While FlashBill is focused on invoicing rather than full accounting, your invoice data can be exported for use with MTD-compatible accounting software. We are developing MTD ITSA integration to allow quarterly submissions directly from FlashBill.