How will Making Tax Digital work for sole traders from April 2027?

How will Making Tax Digital work for sole traders? It replaces the yearly tax return scramble with digital records and four quarterly updates sent from software, then a final return. From 6 April 2027 it covers anyone whose self-employment and property income, before expenses, topped £30,000 on their 2025 to 2026 tax return.¹

Do I need to do digital tax next year?

You do if the sales and rent on your 2025 to 2026 return add up to more than £30,000, unless you qualify for an exemption. That return covers April 2025 to April 2026 and is due by 31 January 2027, and whatever number you file is the one used to set your start date, so we'd get it right rather than rushed.² HMRC says it only looks at your turnover from self-employment and property put together, and it'll contact you once you've crossed the line.³ Wages from a job, pensions, savings and income as a company director don't count towards it.¹ Limited companies aren't in at all, although a VAT registered company will already be using Making Tax Digital for VAT.³

One detail catches people out. According to the Low Incomes Tax Reform Group, if your income falls in 2026 to 2027 you still have to start in April 2027, and the only way out is stopping your self-employment and letting altogether before the start date.² So a quieter year ahead won't get you off the hook, which is a bit like being booked onto a course because of last year's enthusiasm.

The figure HMRC checks is your sales, not your profit

Qualifying income, the number that decides whether you're in, is your gross income, which broadly means everything you bill and all the rent you collect before a penny of expenses comes off.¹ This is the part we'd want every sole trader to understand, because it's where people tend to assume they're safely under.

Say a self-employed decorator invoiced £23,000 in 2025 to 2026 and spent £9,000 on paint, materials and van costs, leaving £14,000 profit. She also lets a one-bedroom flat at £750 a month, so £9,000 of rent for the year, and mortgage interest and repairs swallow most of it. Her taxable profit across both might only be around £16,000, which doesn't feel like a business HMRC would single out. Her qualifying income is £23,000 plus £9,000, though, which makes £32,000, so she's in from 6 April 2027 and she'll send separate quarterly updates for the decorating and the flat that then pull through into one tax return.³

Do swaps and payments in kind count towards the £30,000?

They do. HMRC's notes for the self-employment pages of the tax return say your turnover includes payments in kind, meaning work you were paid for with something other than cash or a cheque.⁴ So a florist who took £28,000 in cash and card sales and also did £2,500 of wedding flowers in return for a new website has turnover of £30,500, and that swap is what tips her over the threshold. We'd always record a swap at its normal market price, the same as both sides would charge a paying customer, and our guide on whether bartering is taxable in the UK explains how that works. If you're anywhere near the line, we'd ask your accountant to check your figures before you file.

How will Making Tax Digital work for sole traders?

You keep your income and expenses as digital records in software that works with HMRC. Every three months the software adds them up into totals for each category and sends them as a quarterly update, and afterwards you can see an estimate of your tax bill, which is handy for putting money aside.⁵ Leaving something out of a quarter isn't a disaster, because you correct the record and it goes in with the next update.³ The tax return still comes at the end, sent from the same software, and the deadline to file it and pay stays at 31 January after the tax year ends.⁶

For anyone starting in April 2027, HMRC's published timetable gives these dates for the 2027 to 2028 tax year, and we'd put them in the diary now.⁵

• First quarterly update by 7 August 2027
• Second quarterly update by 7 November 2027
• Third quarterly update by 7 February 2028
• Fourth quarterly update by 7 May 2028
• Tax return and any tax owed by 31 January 2029

The people who joined this April got a gentle first year, because no penalties apply to late quarterly updates in 2026 to 2027.³ April 2027 joiners don't get that luxury. From 2027 to 2028 each missed quarterly update earns a penalty point, and once you reach four points you pay £200, then another £200 every time you miss a deadline after that.⁶ Late payment works differently, although in your first year you do get 30 days from the due date to pay in full or set up a payment plan before penalties start.⁶

Getting ready this winter without overspending

We'd start with your 2025 to 2026 figures. Add up your sales, your rent and the market value of any swaps, and if the total is close to £30,000 we'd plan as though you're in. Then look at software. GOV.UK keeps a list of compatible products and says free ones are available for people with simple tax affairs, though they may limit things like the number of transactions, so we wouldn't pay for features you won't use.⁷ You don't have to give up a spreadsheet you're happy with either, because bridging software connects to spreadsheet records and sends the updates for you.⁷ If you already file Self Assessment through software, ask the provider whether it works with Making Tax Digital.³ And if your age, disability, health or location means you can't reasonably use a computer, tablet or phone, you can apply for an exemption.³ Of course, none of this is personal advice, so talk to your accountant about your own start date and set-up.

Where swapping fits once the paperwork goes quarterly

Quarterly updates make it obvious when the books need a regular hand, and paying a bookkeeper every three months is a real cost for a small trader. Some businesses swap for that help instead, trading a shoot, a website or a day's decorating for a bookkeeper's time, and record the swap at market value like any other sale. On Exchange of Services you can browse the services other businesses are offering and agree the details with no fees or commission. Join free and list your services if you'd like to try it.

Frequently asked questions

How is tax changing for sole traders in 2026?

Since 6 April 2026, sole traders and landlords whose gross self-employment and property income was over £50,000 on their 2024 to 2025 return have had to use Making Tax Digital for Income Tax. The threshold falls to £30,000 from April 2027 and £20,000 from April 2028.

What is qualifying income for Making Tax Digital?

It's your gross income from self-employment and property letting added together, before any expenses come off. Employment wages, pensions, savings income and partnership income aren't included. HMRC uses the figure on your latest tax return to decide your start date.

When do I need to sign up for Making Tax Digital?

If your 2025 to 2026 tax return shows qualifying income over £30,000, you'll need to follow the Making Tax Digital rules from 6 April 2027 unless you're exempt. HMRC will contact you once your turnover reaches a threshold, and it may sign you up itself if you haven't done so.

Do I need Making Tax Digital in my first year as a sole trader?

Not straight away. HMRC says new sole traders and landlords first complete one Self Assessment tax return, then HMRC checks the turnover and tells you when to sign up. If your first year is shorter than 12 months, the income is scaled up to a full year to test it against the threshold.

Is there a penalty for sending a quarterly update late?

Not in the 2026 to 2027 tax year, when no penalties apply to late quarterly updates. From 2027 to 2028, each missed deadline earns a penalty point, and reaching four points brings a £200 penalty, with another £200 for each further missed deadline.

Sources

1. Low Incomes Tax Reform Group: Who does Making Tax Digital apply to? litrg.org.uk
2. Low Incomes Tax Reform Group: When does Making Tax Digital start for me? litrg.org.uk
3. HMRC: Making Tax Digital for Income Tax frequently asked questions makingtaxdigital.campaign.gov.uk
4. HMRC: Self-employment (full) notes SA103F 2025 assets.publishing.service.gov.uk
5. HMRC: Quarterly updates with Making Tax Digital makingtaxdigital.campaign.gov.uk
6. GOV.UK: Penalties for Making Tax Digital for Income Tax gov.uk
7. GOV.UK: Find software that's compatible with Making Tax Digital for Income Tax gov.uk