From April 2026, Making Tax Digital (MTD) for Income Tax will transform the way sole traders record and report their earnings to HMRC. While that might sound like a big change, getting prepared early can make the transition much smoother, and even bring new efficiency to how you manage your finances.
Here’s how to get your business ready for MTD.
1. Check Whether You’ll Need to Join in 2026
The first step is to determine when you’ll be required to join MTD for Income Tax.
If your annual turnover exceeds £50,000 for the 2024-25 tax year, you’ll need to comply from April 2026. Those earning between £30,000 and £50,000 will be included a year later, from April 2027.
If your income falls below £30,000, MTD won’t apply yet, but it’s still worth understanding the process so you can prepare for future changes.
2. Choose MTD-Compatible Accounting Software
Under MTD, paper records and manual spreadsheets will no longer meet HMRC’s requirements. Instead, you’ll need to use MTD-compatible software that can record income and expenses digitally and submit quarterly updates automatically.
Options like Xero are popular choices for sole traders because they’re intuitive, cloud-based, and fully compliant with HMRC’s digital filing rules. Setting this up early means you’ll have time to get comfortable with the system before deadlines hit. There is new subscription level called Xero Simple that has been created for Making Tax Digital submissions
3. Start Recording Income and Expenses Digitally
If you haven’t already, now is the perfect time to move away from manual bookkeeping. By recording your transactions digitally, you’ll save time, reduce errors, and have a clearer view of your cash flow.
Using tools such as Xero’s bank feeds and receipt capture features, you can automatically track income and expenses, ensuring your records are always up to date and ready for MTD reporting.
4. Practice Quarterly Reporting
Under MTD, sole traders will need to submit quarterly updates to HMRC rather than one annual return. This means you’ll be reporting your figures every three months.
Rather than waiting until April 2026, it’s a good idea to start practising now. Many accounting systems already allow you to create mock quarterly submissions. Doing this in advance will help you get used to the process, identify any gaps in your record-keeping, and avoid last-minute stress when the rules come into effect.
5. Get the Right Support
Understanding the new rules and choosing the right software can feel daunting at first, but you don’t have to go it alone. Speaking to an accountant familiar with MTD for Income Tax can make all the difference.
An expert can help you choose the right system, set it up properly, and ensure you’re meeting all the HMRC requirements well before the deadline. They can also offer training, guidance, and ongoing support as MTD becomes part of your regular business routine.
Start Preparing for MTD Today
Making Tax Digital for Income Tax is a significant shift for sole traders, but with the right preparation, it can bring major benefits, from real-time visibility of your finances to fewer surprises at tax time.
Taking action now means you’ll be confident, compliant, and ready for the changes ahead.
If you’d like help preparing for MTD and setting up digital accounting software like Xero, now is the perfect time to start. Contact us for more information.
