Making Tax Digital for Income Tax: what sole traders and subcontractors need to do

What is Making Tax Digital for Income Tax?

It is HMRC’s new way of reporting self-employed and rental income. Instead of sorting a year of paperwork once, you keep your records in software as you go and send HMRC a summary every quarter.

The quarterly updates do not replace your tax return. GOV.UK says they are summaries, not tax returns. You still send a tax return after the year ends, now through your software. You will often see this called the final declaration: it is the same thing.

Who has to use Making Tax Digital?

Sole traders and landlords whose income from self-employment and property is over the threshold. GOV.UK says it applies if you’re a sole trader or a landlord registered for Self Assessment and your income is over the limit for the year. Partnerships do not need it yet. GOV.UK: Partnerships do not currently need to use Making Tax Digital for Income Tax.

Making Tax Digital for landlords, including joint owners

HMRC writes to people it thinks need to start, but do not wait for the letter. GOV.UK: If you did not receive a letter, it is still your responsibility to check if and when you need to use Making Tax Digital for Income Tax.

What are the Making Tax Digital thresholds and start dates?

There are three. Your income in an earlier tax year is checked against each one, and you start if you were over it:

You have to be over the threshold to be in. Qualifying income of exactly £30,000 in 2025 to 2026 does not bring you in from 6 April 2027. HMRC checks your tax return each year, so for the 6 April 2027 start it checks your 2025 to 2026 return, due by 31 January 2027. All three thresholds are already set in law, so the £20,000 step from 6 April 2028 is not just a plan.

The figure is your qualifying income: your self-employed and property income added together, before expenses. GOV.UK: This is the amount before expenses (also known as turnover), based on the tax return you submitted in the previous tax year. So it is your turnover, not your profit.

These do not count towards it:

• Wages from a job taxed through PAYE
• Your share of profit from a partnership
• Dividends, including from your own company
• The State Pension and private pensions

GOV.UK, work out your qualifying income: All other sources of income do not count towards your qualifying income.

Once you are in, a quiet year does not take you out. GOV.UK says if your qualifying income drops below the relevant threshold for 3 tax years in a row, you can choose to opt out.

Do I need to use Making Tax Digital? A worked example

Take a self-employed bricklayer working under CIS, all labour and no materials. Their turnover was £29,000 in 2024 to 2025 and £34,000 in 2025 to 2026.

They did not need to start from 6 April 2026, but they do from 6 April 2027. So in 2027 to 2028, their first year, a late quarterly update gets no penalty point (a plan, could change).

It does not matter that less reached their bank. Contractors took 20% off, so they were paid £27,200, and after £6,000 of costs their profit was £28,000. Both are under £30,000, but the test is their turnover of £34,000, before CIS deductions and before costs.

Does Making Tax Digital apply to CIS subcontractors?

Yes, if you work as a sole trader and your turnover is over the threshold. Being in CIS does not change whether you need it, and contractors keep taking deductions as before.

Your income is what you were paid before deductions. On your tax return GOV.UK tells subcontractors to record your total pay before deductions were taken, as ‘income’ and the total deductions contractors have taken, as ‘CIS deductions’.

Two things change at the end of the year:

• HMRC fills in your CIS deductions. GOV.UK lists CIS subcontractor deductions among the figures HMRC adds to your return. Check them against your monthly statements. GOV.UK: You must check this information before you submit your tax return.
• You claim a refund separately. If your deductions came to more than your tax, the refund is not claimed in the return. GOV.UK: If you think you are due a tax refund, you cannot claim the refund in your tax return using Making Tax Digital for Income Tax. You need to request the refund using your HMRC online services account.

GOV.UK, submit your tax return: If HMRC has information about your other income sources, we will add them to your tax return for you.

How to claim a CIS refund

What do I have to do under Making Tax Digital?

Three things, all through software that works with it:

1. Keep digital records. Record every sale and every business cost in software that works with Making Tax Digital, with the amount, the date and a category. Keep the receipts and invoices behind them too.
2. Send a quarterly update every three months. Your software adds up your income and expenses for the tax year so far and sends HMRC the totals. You send one for each business, even in a quarter where nothing came in.
3. Send your tax return through the same software. After the tax year ends you make any adjustments, add your other income, check HMRC's figures and send the return. The deadline to send it does not change.

GOV.UK: Making Tax Digital for Income Tax uses the same categories of income and expenses as Self Assessment. HMRC will not receive details of individual receipts or invoices in your quarterly updates. You must submit your tax return by 31 January following the end of the relevant tax year, but you can submit it earlier.

Your last return before you start is done the old way. GOV.UK: You will still need to submit a Self Assessment tax return as you normally do for the tax year before you start using Making Tax Digital for Income Tax.

What are the Making Tax Digital deadlines?

Quarterly updates are due by 7 August, 7 November, 7 February and 7 May. Each one covers the tax year so far:

A quiet quarter still needs an update. GOV.UK: If you have not received any income or incurred any expenses during an update period, you must still send your quarterly update to tell HMRC.

Your first year, by the date you start:

Your tax return for the year before you start is still due by 31 January as usual, sent the old way.

No penalty points apply to late quarterly updates in the 2026 to 2027 tax year. After that, each late update gets a point: If you reach 4 points, you’ll get a £200 penalty. Late tax returns get points from the start. If you join before you have to, late updates get no points while you are volunteering.

The Budget on 28 October 2026 announced one more break: if you must start from 6 April 2027, you get no penalty points for late quarterly updates in the 2027 to 2028 tax year (a plan, could change). It does not cover people who had to start from 6 April 2026, and late tax returns still get points. You still have to send every quarterly update before you can send your tax return. What else the Budget changed.

Making Tax Digital penalties, including paying late

What software do I need for Making Tax Digital?

Software that HMRC recognises for Making Tax Digital for Income Tax. There are two kinds:

• Bookkeeping software that keeps the records itself, from your bank feed, scanned receipts or what you type in, and sends everything to HMRC.
• Bridging software that connects to records you keep in a spreadsheet and sends the figures from there.

GOV.UK, choose the right software: HMRC does not recommend any product or software provider.

Do you have to pay for it? Not always: free products are available for those with simple tax affairs but there may be limits on how the product can be used. GOV.UK’s software finder lists the products that work. If you would rather pay someone to keep the records, see how much a bookkeeper costs.

How do I sign up for Making Tax Digital?

Online, on GOV.UK, once you have chosen your software. You need to be registered for Self Assessment and to have sent a tax return in the last two years. Step by step:

1. Check you need it. Use GOV.UK's checker for the tax years it asks about, and check whether you are exempt.
2. Choose your software. Pick it before you sign up, because you will need to authorise it.
3. Sign in with your Self Assessment login. You may be asked to prove your identity with your passport or driving licence.
4. Give your business details. Your business name, address and trade, your start date if you began in the last two tax years, and the tax year you are starting.
5. Authorise your software. So it can send your quarterly updates and your tax return to HMRC.

GOV.UK, sign up: You should choose your software before you sign up for Making Tax Digital for Income Tax. You’ll need to use the same user ID and password you got when you registered for Self Assessment.

If you leave it, HMRC may do it for you. GOV.UK: From September 2026, HMRC will start to sign up anyone who needs to use Making Tax Digital for Income Tax for the 2026 to 2027 tax year and has not signed themselves up. Signing yourself up means your details are right from the start. You can also join early: You can sign up for Making Tax Digital for Income Tax before you need to use it to help you get ready.

New to self-employment in construction? How to register as a CIS subcontractor

Who is exempt from Making Tax Digital?

Anyone with qualifying income of £20,000 or less, plus a few others. GOV.UK: You are automatically exempt and do not need to use Making Tax Digital for Income Tax if your qualifying income is £20,000 or less.

You can also apply to be exempt if you are digitally excluded, for example if your age, health condition or disability stops you from using a computer, tablet or smartphone to keep digital records or submit them to HMRC. HMRC will not accept it if your only reason is that you’re unfamiliar with accountancy software or that it will take extra time or cost for you to sign up to and use Making Tax Digital for Income Tax.

The Budget on 28 October 2026 also announced exemptions until further notice for people who can claim qualifying care relief, such as foster carers, non-UK resident foreign entertainers and sportspeople, and people expected to be non-UK resident (set by regulations). The regulations are due before April 2027.

Being exempt does not end your tax return: GOV.UK says you must continue to report your income and gains in a Self Assessment tax return.

Can someone else do Making Tax Digital for me?

Yes, an agent can keep your records and sign you up. GOV.UK: You or your agent will need to create and store digital records of your self-employment and property income and expenses. If you use an agent, they can sign you up instead.

Most of the work is keeping the records accurate every month, so the quarterly totals are right when they go. Your figures are ready for your Self Assessment return too, whoever sends it.

What to do now

• Check your income for 2025 to 2026. Add your self-employed and property income together, before expenses. Over £30,000 means you start from 6 April 2027.
• Send that tax return by 31 January 2027. It is the return HMRC checks.
• Choose your software and sign up in time for 6 April 2027. Then keep your records in it from the start of that tax year (1 April if your accounting year ends on 31 March), so your first update is ready by 7 August 2027.
• Not sure if you are in? Use the checker on GOV.UK’s “find out if and when” page, and check the exemptions above.
• Or have someone do it for you: see what an agent can take on.