Making Tax Digital for tradespeople: what you actually need to know

If you run your trade as a sole trader and your turnover is over £50,000, Making Tax Digital (MTD) for Income Tax is no longer something you can put off. It started on 6 April 2026. That means quarterly digital updates to HMRC, proper digital record-keeping, and a new points-based penalty system if you miss deadlines. It’s not as scary as it sounds, but you do need the right setup in place. Here’s everything you need to know, without the accountant jargon.

What is Making Tax Digital for Income Tax?

From 6 April 2026, the way millions of sole traders and landlords report their income to HMRC is changing. The change is called Making Tax Digital for Income Tax, often shortened to MTD for ITSA (Income Tax Self Assessment), and it’s the biggest overhaul of UK self-employed tax reporting in decades.

Under the current system, you file one Self Assessment tax return per year, usually in a rush before the 31 January deadline. Under MTD for Income Tax, that single annual return is replaced by ongoing digital record-keeping and quarterly updates submitted to HMRC throughout the year, followed by a final year-end declaration.

For most tradespeople who’ve been managing a once-a-year self assessment scramble, this is a real shift in habit. But once you’ve got the right software and a simple routine, it’s far less of a headache than it sounds.

Who does it affect, and when?

The rollout is phased by income, so your start date depends on what you earned. Here’s how it breaks down:

From 6 April 2026: sole traders and landlords with qualifying income above £50,000 must join MTD.
From 6 April 2027: the threshold drops to £30,000.
From 6 April 2028: it drops further to £20,000.

According to Enterprise Nation, from 6 April 2026 the first wave of 860,000 sole traders and landlords must use digital software to manage their tax affairs. If you’re a builder, plumber, electrician, carpenter, or any other tradesperson running as a sole trader, you’re in this group if your gross turnover crosses those thresholds.

One thing that catches people out: it’s gross income, not profit. The threshold is based on your total turnover before any expenses are deducted. If you earn £55,000 before expenses but only make £30,000 profit, you’re still in scope from April 2026.

Worth knowing if you also rent out a property: self-employment and property income are combined. If you’re a sole trader earning £32,000 and also receive £20,000 in rental income, your combined qualifying income of £52,000 takes you above the April 2026 threshold.

And to put this in context: according to Statista, as of the third quarter of 2024 there were approximately 745,000 self-employed workers in the construction industry in the United Kingdom, the most of any industry.

What do you actually have to do?

There are three main things MTD requires of you.

1. Keep digital records

You must keep digital records of all business income and expenses using MTD-compatible software. Paper records and standalone spreadsheets are no longer enough. Every invoice raised, every material bought, every van fuel receipt needs to live inside a digital system that connects to HMRC.

2. Submit four quarterly updates

You submit four quarterly updates to HMRC throughout the year, each covering a three-month period. These are summaries of your income and expenses, not full tax returns. No complex accounting adjustments are required at this stage.

Using the standard tax-year quarters, your deadlines are 7 August, 7 November, 7 February and 7 May. Think of these as brief check-ins rather than the full annual return you’re used to. If your software is set up properly, these should take minutes.

3. File a final declaration

After the fourth quarter, you file a Final Declaration by 31 January following the end of the tax year. The Final Declaration replaces the traditional Self Assessment return. It confirms your total income, claims reliefs and allowances, and finalises your tax liability.

According to ICAEW, the first quarterly update, covering 6 April to 5 July 2026, is due on 7 August 2026. The first Final Declaration for the 2026/27 tax year is due on 31 January 2028.

What about penalties?

HMRC has introduced a new points-based system, and it works a bit like driving penalty points. Every missed quarterly update or Final Declaration deadline earns one penalty point. Once you hit four points, a £200 fine is issued.

The reassuring news for the first year: HMRC has confirmed a penalty holiday for 2026/27. No late submission penalty points will be applied for the first four quarterly updates, giving you a full year to find your feet. Late payment penalties still apply, though.

So you won’t get stung for a missed quarterly update in year one, but don’t treat that as a free pass. Get set up properly from the start and you won’t have anything to worry about going forward.

Does it apply to limited companies?

No. Limited companies are not affected. MTD for Income Tax applies only to sole traders and landlords at this stage. If you operate through a limited company, this doesn’t apply to you right now.

How do you check if you’re in scope?

You need to calculate your qualifying income from self-employment or property rental in the 2024/25 tax year, the year of your most recent tax return. That means your total turnover before expenses from your self-employed business and/or rental income. If it’s over £50,000, you need to be ready from 6 April 2026.

HMRC uses your 2024/25 tax return to work out your April 2026 start date. If you haven’t filed your 2024/25 return yet, do it as soon as possible so HMRC can assess your position correctly.

What software do you need?

You need HMRC-recognised, MTD-compatible software. It must be on HMRC’s approved list, and not all MTD software does everything you need, so check before you commit.

The things to look for when choosing software:

It’s on HMRC’s approved list
It supports both quarterly updates and the Final Declaration (not all do)
It connects directly to your bank account to pull in transactions automatically
It’s built for how tradespeople actually work, around jobs, invoices and materials, not for office-based accountants

From April 2026, MTD users must submit their Self Assessment return through their MTD software. Some tools only handle the quarterly filing and won’t take you through to the Final Declaration, so check before you commit.

At Mucka, we’ve built our software around exactly this. Tradespeople need admin sorted without it eating into their working day. Your invoices, expenses and job data flow straight through to your quarterly submissions, with no rekeying, no bridging software, and no spreadsheet workarounds.

A practical checklist to get MTD-ready

Here’s a straightforward action plan:

Check your 2024/25 gross turnover (before expenses). If it’s over £50,000 you’re in scope now.
If you rent out a property as well, add that rental income to your trade income to get your combined qualifying income.
Choose and set up HMRC-approved MTD software before your first quarter closes.
Connect your business bank account so transactions are captured automatically.
Register for MTD through HMRC’s online service before your start date. HMRC won’t sign you up automatically.
Set calendar reminders for 7 August, 7 November, 7 February and 7 May.
File your Final Declaration by 31 January each year.

According to the ATT, HMRC has been writing to taxpayers during February and March 2026 who need to sign up before April. If you’ve had one of those letters, don’t ignore it.

The bigger picture

This change will reach more tradespeople over the next few years. HMRC estimates around 4.2 million self-employed individuals and landlords will eventually fall within scope. The £20,000 threshold coming in 2028 will pull in a large number of sole traders across the trades who currently think they’re too small to worry about it.

The sooner you get a proper digital system running, the less disruptive the change will be. Tradespeople already logging jobs, raising invoices and tracking expenses digitally will barely notice the difference. Those still relying on a shoebox of receipts and a January panic are going to find this harder.

MTD is not going away. HMRC has delayed it several times over the years, but the current official position is that no further deadline extensions have been granted beyond the confirmed 2026 and 2027 start dates. This one is happening.

FAQ

Does Making Tax Digital apply to me if I’m a sole trader tradesperson?

Yes, if your gross turnover from self-employment (and any rental income combined) exceeded £50,000 in the 2024/25 tax year. Self-employed tradespeople who complete a Self Assessment return are included in the MTD rollout if their gross income meets the relevant thresholds.

Do I have to do four full tax returns a year now?

No. A quarterly update is a summary of your business income and expenses by category, not a full tax return. Things like total sales, total materials costs, total vehicle costs. Your full year-end position is only finalised in the Final Declaration in January.

What if I miss a quarterly deadline?

HMRC has confirmed there will be no penalties for missing a quarterly update deadline in 2026/27. From 2027/28, missed updates earn penalty points, and four points triggers a £200 fine. Late payment penalties apply throughout.

What counts as qualifying income for MTD?

Your combined gross income from all self-employment and property rental, measured before expenses. Wages from PAYE employment, dividends, investment income and pensions don’t count towards the MTD threshold.

Does MTD apply if I operate through a limited company?

No. MTD for Income Tax applies to sole traders and landlords only. If you’re thinking about whether your business structure makes sense given these changes, it’s worth talking to an accountant.

Get sorted with Mucka

MTD is one more reason to ditch the paperwork and run your trade on a proper digital system. Mucka is built for tradespeople. It handles your invoices, expenses, and job management and keeps your records MTD-ready without you having to think about it. If you’re coming up on the April 2026 deadline and you’re not set up yet, now is the time. Try Mucka free today and see how straightforward it can be.