MTD for income tax: the tradesperson’s step-by-step compliance guide
Making Tax Digital for Income Tax is no longer something coming down the road — it is here. If your gross turnover from self-employment and any rental income combined was above £50,000 in the 2024–25 tax year, you are already in the first wave and need to be set up now. If you are sitting between £30,000 and £50,000, your deadline is April 2027 and the clock is ticking. This guide covers every step you need to take: how to work out whether you are in scope, what you actually have to submit and when, which software works, and how tools like Mucka can help you keep your records in order throughout the year without it becoming another evening job.
Who is actually affected, and when?
From 6 April 2026, the first wave of 860,000 sole traders and landlords must use digital software to manage their tax affairs. If that number feels abstract, think of it this way: if you are a self-employed electrician, plumber, builder, roofer, or any other tradesperson operating as a sole trader, you fall squarely into the group HMRC is targeting first.
The rollout happens in three stages:
- April 2026: qualifying income over £50,000
- April 2027: qualifying income over £30,000
- April 2028: qualifying income over £20,000
The threshold progressively lowers to £30,000 from April 2027 and to £20,000 from April 2028, eventually bringing up to three million more self-employed people into the digital regime.
One important point if you are just below these thresholds: HMRC has emphasised that even if taxpayers do not receive direct notification, “it is still your responsibility to check if and when you need to use” MTD. Do not wait for a letter before acting.
The number that catches most tradespeople out: qualifying income
This is where we see the most confusion, and it is worth getting right before you do anything else.
Qualifying income for MTD is the combined total of your gross self-employment income — your total business turnover or receipts — and your gross UK property income, your total rental receipts from UK properties. The word gross is critical here: it means your total income before deducting any expenses, allowances, or reliefs.
In other words, if your turnover is £58,000 but your expenses bring your profit down to £32,000, HMRC is still looking at the £58,000 figure. HMRC are not asking “did you make more than £50,000 profit?” They are asking “was your gross income from self employment and property over £50,000?”
This catches a lot of tradespeople out. Say you are a self-employed joiner turning over £45,000. You also rent out a flat you inherited — that brings in £8,000 a year. A sole trader with £45,000 in self-employment turnover and £8,000 in rental income has qualifying income of £53,000. Even if their taxable profit after expenses is only £28,000, they exceed the Phase 1 threshold and must comply from April 2026.
What does not count? If you earn a salary alongside self-employment or rental income, your employment income does not count towards the qualifying income threshold. So if you do a few shifts on a PAYE basis alongside your trade, only the self-employed turnover matters for this calculation.
How to check your own figure
Your qualifying income is taken directly from your 2024–25 Self Assessment return. For self-employment using full accounts, the qualifying figure is in Box 9 — “Total income from self-employment (turnover).” For simplified accounts, use the same box: “Your turnover: the total income from your self-employment.” Add to that your gross rental income if you have any, and that combined figure is what HMRC uses.
What MTD actually requires you to do
The old system was simple enough: one Self Assessment return, once a year, by 31 January. Instead of one annual Self Assessment return, businesses must now submit income and expense summaries every quarter, plus a final year-end declaration.
Here is how the reporting cycle works in practice:
The four quarterly updates
Each quarterly update is a summary of your business income and expenses for that three-month period. You do not need to send invoices or receipts — just the totals in each category. Think of it as a quick income-and-spending summary, not a full tax return.
These are not “mini tax returns” as accounting and tax adjustments are optional. Instead, they will just represent the total of each category of income and expense that quarter.
The four deadlines each year are:
- Q1 (6 April – 5 July): submit by 7 August
- Q2 (6 July – 5 October): submit by 7 November
- Q3 (6 October – 5 January): submit by 7 February
- Q4 (6 January – 5 April): submit by 7 May
HMRC-approved software is required to submit quarterly updates; spreadsheets alone are not sufficient.
The final declaration
After the four quarterly updates, you still need to file a Final Declaration. After the fourth quarter, you must file a Final Declaration by 31 January following the end of the tax year. The Final Declaration replaces the traditional Self Assessment tax return. It confirms your total income, claims reliefs and allowances, and finalises your tax liability.
One thing that confuses a lot of people: MTD does not change when you pay your tax. MTD only changes how often you report to HMRC — it does not change when you have to pay your tax. Quarterly updates are reporting submissions only. They are not tax bills. You are not required to make a tax payment every quarter just because you submit an update. Payment timelines stay the same.
What if you have multiple businesses or income sources?
A separate quarterly update will be needed for each trade or property business — so a sole trader who also rents out a property would have eight quarterly submissions to make each year. That is something to factor into how you organise your records from the start.
What about penalties?
HMRC has introduced a points-based penalty system. From April 2026, MTD penalties work on a points system, similar to driving licence points. If you miss a quarterly update deadline, you will receive a penalty point. You will not receive a financial fine immediately. You will only be fined a fixed amount (currently £200) once you reach a certain threshold of points (usually 4 points for quarterly reporters).
The good news if you are in the first wave: for the 2026/27 tax year, HMRC has confirmed a soft landing period. No penalty points will be issued for late quarterly updates during this first year. Late payment penalties still apply, but you will not accumulate points towards the £200 fixed penalty for missed quarterly filings.
Do not let the soft landing lull you into a false sense of security. From 2027/28, the full penalty points system takes effect: each late update adds one point, and reaching four points triggers a £200 fine.
Also worth knowing: penalties will apply for failures relating to annual obligations, such as late submission of the final declaration or late payment of tax — those apply from day one, soft landing or not.
The step-by-step compliance checklist
Here is what you actually need to do, in the right order:
Step 1: Work out your qualifying income Pull up your 2024–25 Self Assessment return. Find your gross turnover from self-employment and add any gross rental income. If the combined figure is above £50,000, you are in now. Between £30,000 and £50,000? You are in from April 2027.
Step 2: Check you are registered for Self Assessment HMRC will not register taxpayers within scope of MTD ITSA automatically. You need to sign up through your Government Gateway account or ask your accountant to do it through their agent services account.
Step 3: Choose HMRC-compatible software For software to be MTD-compatible, it needs to connect to HMRC’s systems via an API, maintain digital records as required, and submit quarterly updates and the Final Declaration directly to HMRC. Spreadsheets on their own will not cut it unless you also have approved bridging software connecting them to HMRC.
Step 4: Start keeping digital records Under MTD, digital records are required to be kept for each source of business or property income. The records must include the date, amount, and category of each income and expense item. The practical implication: every job you invoice, every bag of materials you buy, every tank of diesel — it all needs to be logged digitally as you go, not reconstructed at year-end.
Step 5: Submit your first quarterly update by 7 August 2026 This is your first real deadline. It covers 6 April to 5 July 2026. Make sure your software is set up and authorised well before then.
Step 6: File your Final Declaration by 31 January 2028 This covers the 2026–27 tax year and replaces your usual Self Assessment return for that year.
Which software do you actually need?
HMRC maintains a list of approved software providers. The major ones relevant to tradespeople are Xero and QuickBooks — both of which Mucka integrates with directly.
Xero is a well-established cloud accounting platform that is fully MTD-compliant. It connects to your bank account, categorises transactions, and lets you or your accountant submit quarterly updates directly to HMRC. Benefits include improved accuracy and fewer chances for human error, since software automates data entry, and visibility of tax liability with every quarterly update you submit, giving you a clearer view on the total tax due.
QuickBooks offers a similar set of features and is equally popular with self-employed tradespeople. Making Tax Digital for Income Tax requires self-employed individuals and landlords with income over £50,000 from April 2026 to keep digital records and submit quarterly updates to HMRC with the help of compatible software. QuickBooks handles both the record-keeping and the HMRC submission in one place.
Both platforms are solid choices. The decision often comes down to what your accountant already uses, since it makes the handover for your Final Declaration much smoother.
What about spreadsheets? Users are required to keep records and submit updates using software that is compatible with Making Tax Digital. While spreadsheets can still be used for record-keeping, they must be digitally linked to MTD-compliant software to enable submissions. So you can keep your records in a spreadsheet if you want, but you will need bridging software sitting between it and HMRC.
Where Mucka fits in
The biggest challenge for most tradespeople is not the software itself — it is keeping records current throughout the year rather than doing a big catch-up every three months. That is where we built Mucka to help. Mucka captures your jobs, invoices, and expenses as part of your normal working day — no separate bookkeeping session required. When it comes to submitting your quarterly update, the figures are already there, clean and categorised, ready to push through to Xero or QuickBooks.
If you are already worried about staying on top of four quarterly deadlines on top of a full workload, building records maintenance into your day-to-day workflow is the only approach that actually works long-term.
The awareness problem
One thing that concerns us when we speak to tradespeople across the UK is how few are actually ready for this. Research from IPSE and Sage shows that awareness of MTD is worryingly low. A survey of 1,000 sole traders found that only 30% have a clear understanding of what MTD involves. In practical terms, that means seven out of ten either have not heard of the initiative or do not realise it requires digital record-keeping and quarterly submissions through approved software.
That figure is hard to believe given MTD is now live, but it tracks with what we hear on the ground. A lot of tradespeople are still assuming their accountant will handle everything, or that the January Self Assessment deadline is still the only date that matters. Neither of those assumptions holds up under MTD.
Sage and IPSE estimate 1.8 million sole traders fall within scope, and research states that 90% are not yet on digital platforms. If you are reading this and have not yet set up MTD-compatible software, you are in good company — but that is not a comfortable position to stay in.
A few common mistakes to avoid
Before we wrap up, here are the errors we see most often:
Using profit instead of turnover to check your threshold. As covered above, HMRC looks at your gross income before expenses. A busy plumber turning over £60,000 but keeping £22,000 after materials and van costs is still very much in scope for April 2026.
Ignoring rental income when calculating your qualifying income. If you own a buy-to-let alongside your trade, that rental income stacks on top of your self-employment turnover. If you operate a consultancy that generates £25,000 in turnover and also receive £10,000 in gross rental income, your total qualifying income is £35,000. This places you within the April 2027 mandation window, even though neither income stream hits the threshold on its own.
Assuming VAT compliance means you are already MTD-compliant for income tax. MTD for Income Tax applies to your personal income tax (Self Assessment), not your VAT. Being compliant with MTD for VAT does not automatically make you compliant with MTD for income tax. You may need to register for the new income tax service separately, even if you are already using software for VAT.
Leaving software sign-up until the deadline. The sign-up process takes time. You need to authorise your chosen software to connect to HMRC, and if you are working with an accountant they need to link via their agent services account. Do this now, not the week before your first quarterly deadline.
Frequently asked questions
Does MTD change when I pay my tax?
No. MTD only changes how often you report your income and expenses to HMRC. You still pay your tax in the same way, on the same January and July payment on account schedule. Quarterly updates are reporting submissions, not payment demands.
What if my income drops below the threshold after I’ve signed up?
Once you start using MTD, you generally cannot opt out even if your income later drops. You must continue sending quarterly updates unless your self-employment and property income cease entirely. However, if your qualifying income remains below the threshold for three consecutive years after you have joined, you may be able to opt out.
Can I use a spreadsheet instead of accounting software?
You can use a spreadsheet for the underlying record-keeping, but it must be connected to HMRC’s systems via approved bridging software for the actual quarterly submission. Spreadsheets on their own are not sufficient. Most tradespeople find it simpler to use a dedicated accounting platform like Xero or QuickBooks rather than managing the bridging software layer on top.
Do I need to send my invoices and receipts to HMRC each quarter?
No. Each quarterly update is a summary of your business income and expenses for that three-month period. You do not need to send invoices or receipts — just the totals in each category. Keep your invoices and receipts in case of an HMRC enquiry, but you do not submit them with each quarterly update.
What if I trade through a limited company?
If you trade exclusively through a limited company, you are currently exempt from these specific rules. There is no Making Tax Digital for corporation tax mandate for 2026; at the time of writing, the government has not yet set a date for digitising corporation tax. MTD for income tax currently applies to sole traders and landlords only.
Get set up before it becomes urgent
MTD for income tax is the biggest change to how tradespeople report their earnings since Self Assessment launched in the 1990s. The rules are live, the deadlines are set, and the soft landing period for the first cohort will not last. If your turnover puts you in scope now or in 2027, the sensible move is to get your software sorted and your records flowing digitally before the next quarterly deadline arrives.
Mucka integrates with both Xero and QuickBooks to keep your job records, invoices, and expenses organised as part of your normal working day — so when the quarterly deadline comes around, you are not scrambling. If you want to see how it works, take a look at how Mucka handles the daily admin that MTD will depend on.
