MTD Sole Trader Checklist: 9 Steps to Be Ready for April 2026

Making Tax Digital for Income Tax (MTD ITSA) requires sole traders with qualifying income above £50,000 to keep digital records and submit quarterly updates from 6 April 2026. If that threshold applies to you, there are nine practical steps to complete before that date.

Who Needs to Act Now

You need to comply with MTD ITSA from 6 April 2026 if your gross qualifying income (before expenses) from self-employment and property combined exceeded £50,000 in the 2024-25 tax year.

The thresholds extend in later years:

If you are in Phase 2 or 3, you still benefit from preparing early. The steps below apply regardless of which phase you fall into.

The Checklist

Step 1: Confirm your qualifying income

Work out your gross income from self-employment and property for the relevant tax year. Use the gross figure before any expenses or allowances. If you have multiple self-employment businesses, add all sources together. Employment income (PAYE), dividends, pension income and partnership profits are not included.

If you are unsure, check your Self Assessment tax return for the relevant year or speak to your accountant.

Step 2: Check whether any exemption applies

Some sole traders are automatically exempt. You may not need to comply if:

• Your qualifying income is at or below £20,000.
• You use certain income averaging relief arrangements.
• You receive qualifying care relief (foster carers, shared lives carers).
• You are currently required to complete supplementary pages SA107 or SA109 on your Self Assessment return.

A digital exclusion exemption is also available if age, disability, health condition, or genuine lack of internet access in your location makes digital record-keeping unreasonable. Preference for paper or unfamiliarity with software is not sufficient on its own. See our full article on MTD exemptions for the application process.

Step 3: Choose compatible software

You cannot use paper records or an ordinary spreadsheet to meet MTD ITSA requirements on its own. You must use software that appears on HMRC's approved list of compatible products.

The main options for sole traders are Xero, QuickBooks, FreeAgent, Sage, and a range of smaller tools. Some are full accounting packages; others are simpler apps suited to sole traders with straightforward income. Bridging software also exists, which connects a spreadsheet to the MTD submission system. See the compatible software section of our MTD guide for a comparison with current pricing.

When choosing software, check that it:

• Supports your type of income (self-employment, and property income if relevant)
• Can send quarterly updates and the final declaration to HMRC
• Works with your accounting period (standard tax year 6 April to 5 April, or calendar period 1 January to 31 December)

Step 4: Set up your digital records from 6 April 2026

Once you are signed up, you need digital records in place from the start of the tax year that MTD ITSA applies to you. For Phase 1, that means 6 April 2026. For Phase 2, it means 6 April 2027.

Digital records must include, for each transaction:

• The amount
• The date received or incurred
• The income or expense category (same categories as Self Assessment)

If your turnover from a single self-employment source is below £90,000, HMRC allows simplified categorisation: you only need to record whether each transaction is income or an expense, rather than the full breakdown.

Step 5: Understand the quarterly update deadlines

You must submit four quarterly updates per tax year. For the standard accounting period (6 April to 5 April), the deadlines are:

If you have a 31 March accounting year-end, you can use calendar update periods instead (1 April to 31 March), which gives the same deadlines. You must select this option in your software before sending your first update; you cannot switch mid-year.

Quarterly updates report cumulative totals, not individual transactions. HMRC does not receive your full transaction list. Each update tells HMRC your income and expense totals for the period to date.

Step 6: Know what happens if you have more than one business

If you run more than one self-employed business (for example, you are a freelance writer and also sell handmade goods), you must keep separate digital records for each business and submit separate quarterly updates for each. Each source is treated independently.

This applies even if both businesses use the same software.

Step 7: Sign up with HMRC

You sign up through your HMRC online account at GOV.UK. The sign-up service is available now for those who want to join early.

Before you sign up, you will need:

• Your Government Gateway user ID and password
• Your National Insurance number
• The start date of your accounting period
• Your compatible software already chosen and installed

After signing up, you authorise your software to connect to HMRC. You repeat this authorisation every 18 months. Your software will prompt you when reconnection is due.

If you use an accountant or bookkeeper, they can sign up on your behalf using their Agent Services Account, provided you have given them authorisation. Existing Self Assessment authorisations carry over automatically.

Step 8: Plan for the final declaration

At the end of each tax year, after your fourth quarterly update, you submit a final declaration (replacing the traditional Self Assessment return). The deadline is 31 January following the end of the tax year: for 2026-27, that is 31 January 2028.

The final declaration covers all other income not reported in quarterly updates, such as dividends, employment income, and capital gains. It also allows you to make end-of-year adjustments and claim reliefs.

Your MTD-compatible software handles the final declaration submission.

Step 9: Understand the penalty framework

HMRC operates a points-based penalty system for late quarterly updates. Each missed deadline adds one point. At four points, a £200 penalty applies. Points expire after 24 months if you remain below the threshold, and can be reset through a period of compliance (12 consecutive months of on-time submissions).

There is a 12-month grace period for quarterly update penalties only, running from your MTD ITSA start date. This applies to Phase 1 starters from 6 April 2026. The grace period does not apply to late final declarations.

Late payment penalties apply separately under the 2025-26 rules.

For a full explanation of points and penalties, see our article on the MTD penalty points system.

Summary Checklist

For a deeper look at what MTD ITSA involves, including software options and what qualifying income means, see the DigiTaxHub MTD guide.

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DigiTaxHub.co.uk is an independent information resource and is not affiliated with or endorsed by HMRC. This article is for information purposes only and does not constitute tax or financial advice. Always verify current rules at GOV.UK and speak to a qualified accountant if you are unsure.