Making Tax Digital for tradespeople: what to do and when

Making Tax Digital (MTD) for Income Tax is the biggest change to how self-employed tradespeople deal with HMRC since Self Assessment began. It started on 6 April 2026 for the highest earners and reaches far more sole traders in 2027 and 2028. Here is who is in, when, and what to do, based on GOV.UK guidance checked on 12 October 2026.

What is Making Tax Digital, in short?

MTD for Income Tax replaces the "shoebox once a year" approach. If you are in scope, you must:

• keep your business income and expense records digitally, in software that works with MTD,
• send HMRC a quarterly update of your income and expense totals, four times a year, and
• still file a tax return and pay any tax by 31 January after the tax year ends.

The quarterly updates are totals by category, not every receipt, and they do not change when you pay tax. Your software adds things up. You check and send.

Who does MTD for Income Tax apply to?

It applies to individuals with self-employment income, property income or both. That covers sole trader electricians, plumbers, builders, cleaners, landscapers and every other self-employed trade, plus anyone with a rental property on the side.

Qualifying income means turnover, not profit

This is the point most tradespeople miss. GOV.UK defines qualifying income as "the total gross income, from self-employment and property, before expenses and tax." A builder who invoices £48,000 and spends £22,000 on materials has £48,000 of qualifying income, so they are in from April 2027 even though profit is only £26,000.

Self-employment and property income are added together. Employment income (a PAYE job) and pensions do not count towards the threshold.

Who is not in scope yet?

• Limited companies are not part of MTD for Income Tax. Directors' salaries and dividends do not count as qualifying income.
• Partnerships will join "in the future", but GOV.UK has not set a date.
• People who are exempt, for example because they are digitally excluded, though you must apply and still file a tax return.

What about VAT?

MTD for VAT is a separate, older requirement. GOV.UK says all VAT-registered businesses should now be signed up and filing through compatible software. If you are a VAT-registered sole trader, you will normally need to meet both. Our VAT threshold and registration guide explains when VAT applies.

MTD is a UK-wide HMRC system, so the dates are the same in Scotland, Wales and Northern Ireland.

What do you need to do, step by step?

1. Work out your qualifying income. Add your gross self-employment turnover and gross rental income for the relevant year (2024/25 for April 2026, 2025/26 for April 2027, 2026/27 for April 2028).
2. Check whether you are exempt. If you genuinely cannot use digital tools, apply for an exemption on GOV.UK.
3. Choose compatible software. Use HMRC's software finder. Options include full accounting packages, trade job apps with MTD built in, and bridging software that links a spreadsheet to HMRC.
4. Make sure you are registered for Self Assessment and have filed a return in the last 2 years. Our guide on becoming self-employed covers registration.
5. Sign up for MTD for Income Tax online, using your Self Assessment sign-in details. Have your business name, address, trade and start date ready. You may be asked for extra identity checks.
6. Record every sale and expense digitally as you go. Snap receipts on your phone the same day.
7. Send each quarterly update by the 7th of the month after the quarter ends.
8. Make any year-end adjustments and file your tax return by 31 January, and pay what you owe.

What records do you need to keep digitally?

For each sale and each business cost, your software needs the date, the amount and the category. The categories are the same ones you already use on a Self Assessment return, for example:

• Income: turnover from jobs, plus any other business income.
• Cost of goods: materials and parts you buy for jobs, such as cable, pipe, plaster or timber.
• Car, van and travel: fuel, insurance, repairs or the mileage flat rate. Our mileage allowance guide explains which method to use.
• Wages and subcontractor costs, including CIS labour you pay others.
• Office, phone and software costs, insurance, tools and protective clothing.

You do not send receipts or invoices to HMRC. You keep them in case HMRC asks. Photographing a receipt into your app on the day you buy something is the habit that makes MTD painless.

What happens at the end of the year?

After your fourth quarterly update, you make any year-end adjustments, such as capital allowances on a new van or corrections to earlier quarters. Then you file your tax return through your software and pay what you owe by 31 January. If you are a CIS subcontractor, this is where your CIS deductions are set against your bill, exactly as before. Payments on account (31 January and 31 July) carry on as normal.

What are the MTD deadlines, costs and penalties?

You can choose calendar quarters instead (1 April to 30 June and so on). The deadlines stay the same. Each update covers the tax year to date, and you must send one even if you had no income or expenses.

Penalties

• 2026/27: HMRC says it will not apply penalty points for late quarterly updates in the first tax year. Late tax returns and late payment can still be penalised.
• From 2027/28: each late submission earns a penalty point. HMRC's guidance says the threshold for quarterly filers is 4 points. Reaching it brings a £200 penalty, plus £200 for each further late submission.
• Late payment (from 2025/26 under the new regime): nothing if paid within 15 days, 3% of the tax owed at day 15 if paid between days 16 and 30, and a further 3% at day 30 plus a yearly charge of 10% after day 31 if still unpaid. HMRC gives a one-off 30-day window in your first year under the new penalties.

Software costs

GOV.UK says free products exist for people with simple tax affairs, with possible usage limits. Paid software ranges from basic bookkeeping apps to full accounting packages. Prices checked 12 October 2026:

Worked example: three tradespeople, three start dates

Note the electrician. On trade income alone they are under £30,000, but the rental flat pushes them over. The figures look only at the relevant tax year, so check yours each year as your income grows.

The window cleaner is the group most people forget. At £24,000 they are well under today's thresholds, but the £20,000 test for 2026/27 catches them from 6 April 2028. That gives them about 18 months to move from a paper diary to an app. Signing up early as a volunteer (HMRC says quarterly update penalties do not apply to volunteers) is far easier than switching in a rush.

The gas engineer's first year

The gas engineer has been in MTD since 6 April 2026. For 2026/27, their dates are:

• first update (6 April to 5 July 2026): 7 August 2026, already passed,
• second update (to 5 October 2026): 7 November 2026,
• third update (to 5 January 2027): 7 February 2027,
• fourth update (to 5 April 2027): 7 May 2027,
• tax return and payment: 31 January 2028.

If they miss 7 November 2026, there are no penalty points this year. But the same slip in 2027/28 would start building points towards a £200 penalty.

What it costs them

Using Powered Now's Business plan at £28 a month ex VAT, a year costs £336 ex VAT, or £280 ex VAT paid annually. That also covers their quotes, invoices and job diary. Using a bookkeeping package instead, such as Xero Ignite at £18 a month ex VAT (£216 a year), they would still need something for quotes and job sheets, unless they do those in Xero too.

What mistakes should tradespeople avoid?

• Using profit instead of turnover to check the threshold. Materials-heavy trades are caught earlier than they expect.
• Forgetting rental income. It is added to your trade income.
• Leaving receipts until the quarter end. MTD works best when you log costs on the day. A quarter's receipts in a carrier bag defeats the point.
• Thinking quarterly updates mean quarterly tax bills. They do not. Payment dates stay at 31 January and 31 July.
• Assuming you are exempt without applying. Exemption is not automatic.
• Relying on the first-year penalty break. It ends with the 2026/27 tax year. Build the habit now.
• Picking software that does not link to the rest of your setup. Check your job app and accounts package talk to each other.
• Switching to a limited company just to avoid MTD. It rarely makes sense on its own. See our sole trader vs limited company guide for the full picture.

What software helps tradespeople with MTD?

There are three sensible routes, depending on how you run your business.

1. A trade job app with MTD built in

If you work alone and want one app for quotes, invoices, certificates and tax, look at Powered Now. Its official information page (updated July 2026) says it is recognised by HMRC for MTD for VAT and MTD for Income Tax, and MTD is built into every plan from £28 a month ex VAT. VAT return submission is on the Professional plan (£32 per user a month ex VAT). The downsides: its App Store score is lower than some rivals (4.1 from 243 ratings, checked 12 Oct 2026), and certificates need the Professional plan. Read our full Powered Now review.

2. A job app plus an accounting package

Once you have staff, CIS subcontractors or lots of purchases, most firms run a job app for the work and an accounting package (Xero, QuickBooks, Sage or FreeAgent) for the books and MTD submissions. Our accounting software for tradesmen comparison shows which packages are MTD-ready and which job apps link to them.

3. Bridging software for spreadsheet users

If you already keep good spreadsheets, bridging software connects them to HMRC. It is the cheapest change, but you still have to keep the spreadsheet up to date every week.