In April 2025, new rules will come into play for sole-traders to make tax digital and submit their income tax self-assessment. Make sure you're ready.
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If you’re a sole trader with a spreadsheet based upon paper receipts in a shoebox, or even for those of you who are on-top of your record keeping and accounting — things are about to change, with new Making Tax Digital Income Tax Self Assessment rules coming in from April 2026.
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TLDR: If you’ve made over £50,000 in 2024-2025, and you’re a sole trader, you’re going to need to register for Making Tax Digital - a new way of submitting your accounts to HMRC.
It means you’ll need to get an approved accounting software product (like FreeAgent), report your income and expenses every three months and submit your tax return digitally, and keep all of your records digitally too. It’s a change in law, not optional - so if you’re not already aware of what you need to do, read on.
This guide is designed to be a pragmatic introduction to what’s coming to ensure you’re aware that you’ll likely be required to align with the new rules - but may not be exhaustive, nor can it be specific your own circumstances - so it’s worth getting professional advice if you’re unclear.
HMRC (the part of government which collects your taxes) is going through a huge modernisation process, aiming to digitise as much of their processes as possible. They’re rolling out 50+ new IT projects, from fraud-fighting AI to PAYE improvements. By 2030, 90% of taxpayer interactions are meant to go digital - from today’s 75%.
Lots of these projects fall under something you might have heard called “Making Tax Digital” or MTD, some of which have already rolled out (for those of you who pay VAT, you’ll already recognise this) - and for sole traders, MTD ITSA - or Making Tax Digital for Income Tax Self Assessment - is going to come into force from April 2026.
Making Tax Digital will put a number of new obligations on you as a small business owner - when the new rules apply to your business you’ll need to:
The idea is fewer mistakes, quicker tax processing, and a clearer picture of your bill before the end of the tax year. In practice, this is going to mean a little more administration for you, not just the mad rush at the end of the tax year, but every three months.
This might actually be a good thing - rather than 12 months of accounting in a single stressful go, a few weeks before the end of January, you’ll be keeping on top of your records every couple of months, and will have a better sense of your tax liability as you go - which can helpful to ensure you’re not going to be unable to pay.
For those of you who aren’t yet using digital software to track your accounts, this might feel like a big step up - and might come with some costs (both time and money), so it’s important to get prepared now.
MTD ITSA applies to SOLE TRADERS (and landlords).
HMRC is phasing MTD ITSA, based upon your turnover (how much income you bring in, before tax or expenses). When you need to start using Making Tax Digital for Income Tax Self Assessment depends on your qualifying income within a tax year:
From April 6, 2026: if your turnover during 2024-2025 was £50,000 or more, MTD ITSA will apply to you.
From April 6, 2027: if your turnover during 2025-2026 was over £30,000, MTD ITSA will apply to you.
From April 6, 2028: if your turnover during 2026-2027 was over £20,000 MTD ITSA is likely to apply to you, although this isn’t law yet, government has just communicated its plans to do this.
So, if you made more than £50k in 2024-2025 (which you will know by now), you’ll need to get ready for MTD ITSA reporting in April onwards.
If you’re a LIMITED COMPANY OWNER/DIRECTOR, MTD ITSA is unlikely to apply to you - as your income is likely a combination of salary via PAYE and dividends. If you are also registered as a sole trader, you may be required to sign up.
» If you want to check if you’re included in these changes, HMRC have provided a tool here.
Whilst HMRC has confirmed that the income threshold test will be based on your gross income for the 2024–25 tax year (the return you file by 31 January 2026) — the requirement to keep fully digital records only starts from your first MTD-mandated period, i.e. 6 April 2026 onwards (for those over £50k).
If you DON’T NEED to start doing anything yet, you can register for MTD ITSA early, even if you’re not included - and even if you don’t register, you can start getting your processes in order now, so you’re ready for when things do change.
If you DO NEED to start complying with MTD ITSA, you can start preparing early for things, as there won’t be much time between when April and your first “check-in”.
You most likely need a digital solution to keep your records and submit your accounts.
There are lots of solutions available, some are free, some are paid for, many you may already recognise the names of, like XERO, Quickbooks and FreeAgent.
There’s a handy tool to help you find software here: https://www.gov.uk/guidance/find-software-that-works-with-making-tax-digital-for-income-tax
Some of these tools come at a small monthly cost, for instance, FreeAgent is currently £9.50/month, or you can even get it free with some business bank accounts, like Mettle; or Coconut which is £9.95/month but free for two years with a Zempler account.
Some of the larger platforms, such as Sage and Zoho offer free tiers, but you’ll need to check limits (i.e. some are free below certain turnovers).
If you want to continue using a spreadsheet - it is possible to get something called ‘bridging software’ which links from your spreadsheets to HMRC - however, you might not be fully compliant. You’ll need to check the solution meets required standards like digital linking and supports quarterly updates, final declarations, and proper integration with your record-keeping system.
Even if you don’t need to start using these tools yet, they’re incredibly useful to help you keep track of your expenses, and many have handy automations like chasing invoices, or help you calculate your tax liability as you invoice each client.
This means for every payment you receive and make, you’ll need to record them digitally in your accounting tool. This includes:
You’ll also need to keep any digital copies of invoices and agreements, i.e. the PDF of the invoice you’ve sent.
Expenses you claim to reduce your taxable profit must also be recorded digitally at transaction level, with:
This might include things like any invoices you’ve been sent, any travel expenses, utility bills if you’re claiming proportional business use, any professional fees (accountant, solicitor), etc.
Ideally, you’ll also keep a digital record of the receipt too - so for paper receipts, take a photo, and for email receipts, keep the PDF.
HMRC is also expecting you to store digital things like:
You must keep these records for at least 5 years after the 31 January submission deadline for the relevant tax year.
MTD isn’t just about keeping records — it’s about ensuring your submissions are based directly on those digital records, which means no “manual re-keying” of figures between systems (this is called “cut and paste” and HMRC doesn’t allow it).
If HMRC ever queries your return, you can show them the exact invoice or receipt tied to each figure, keeping you compliant, avoiding penalties for not maintaining “digital links”.
Fortunately most accounting tools allow you to automate much of this - for instance, linking your business bank account, which pulls in a feed of all of your transactions. You’ll just need to categorise them, and upload any relevant receipts.
This is a major benefit of keeping your business banking separate from your personal income - even though you’re not legally required to, having a single account which is only business transactions makes your reporting SO MUCH easier. If you haven’t already got a business account, consider opening one ahead of MTD.
Under MTD ITSA, you’ll no longer wait until January to tell HMRC how much you earned - you’ll submit three quarterly interim updates each tax year, with deadlines exactly one month after the quarter ends, along with a final declaration.
These updates aren’t full tax returns - they’re small snapshots of your income and expenses so HMRC and you can build a “real-time” view of your tax position.
You’ll still make an end-of-period statement to finalise each business’s accounts, plus a final declaration to confirm all your income for the year, but the quarterly rhythm early will make it feel like routine, not panic.
For example, for the quarter which ends 5th July, the deadline would be 5th August.
Miss a deadline and you could face late submission penalties under HMRC’s new points-based system, where repeated slips trigger fines.
Most accounting software has useful alerts to remind you when returns will be due - and setting yourself calendar reminders can really help too - giving you adequate time to prepare your records, but keeping on top of your record-keeping, perhaps every week or every month, can reduce the stress even further.
You’ll still be required to submit your end of year tax-assessment, and any relevant tax payments, including payment on account, by January 31st each year.
You’ll need to inform HMRC of any other taxable income from the year, make any adjustments through the software as required, and make a final declaration to confirm all of the records are correct.
This will now all be done through your software - replacing the current HMRC paper form or online forms, which will not be available to you, apart from a few limited exemptions.
If you’re within the criteria, you’ll need to register for MTD ITSA - HMRC won’t put you on the programme automatically, so you have an obligation here to start thinking about now.
Because it’s based upon your 2024-2025 turnover, you can figure this out now.
Your accountant can definitely support you, but the responsibility will still fall to you to:
If you’re used to handing over a shoebox of receipts, speak to your accountant now to understand what changes might be in place for you here.
If you don’t currently work with an accountant, and are considering whether it might be helpful to start working with an account, find a freelance friendly accountant who might be willing to give you some initial advice before signing up to see if it’s right for you.
» You can find accountants via unbiased
Even if you ignore MTD, you’ll still be legally required to submit your quarterly updates and year-end declaration through MTD-compatible software.
Filing by paper or via the old Self Assessment system won’t be accepted (except in very limited exemption cases, like religious grounds or severe digital exclusion).
MTD ITSA will use HMRC’s points-based late submission penalty system:
If you also fail to pay any tax due on time, you’ll face late payment penalties on top, which can quickly add up. You can estimate your penalties here.
It can feel complicated, but once you’ve got it setup, it should be relatively straight forward. That’s why we’re suggesting you start thinking about this now, rather than rushing in April next year.
If you’ve already got an accountant - speak to them to discuss what changes are likely to be required, and they’ll support you through the process. Some accountants may be able to recommend and provide you with software too, and some provide licenses to software as part of their subscription price.
HMRC’s phone helpline is incredibly helpful, but can get quite busy, especially at times of the year when people are submitting their returns, making payments or end of the tax year) (i.e. close to January 31st or April 5th). You can call them on 0300 200 3310 (for self-assessment enquiries) or find other methods to contact them here
Whilst most fellow freelancers are incredibly generous and helpful with advice, they might not understand the complexities of tax rules - so getting professional advice is always recommended.
However, you might find it useful to ask fellow freelancers what software they’re using to get ready for MTD, whether they have good accountants, and what experiences they’ve had so far.
Even though it’s a little time away, don’t put off getting ready for MTD - if you’re not required to register yet.
The new rules and processes come in force from April 2026, meaning you won’t have much time between April 6th and your first quarterly submission.
Migrating to a new process can be stressful - so better to get started now, work out any kinks, and be ready ahead of time.
If you aren’t going to be required to register until 2027, there’s still value in getting your accounting and records in good shape - as it helps you reduce stress for your end of year, and you’ll be ahead of the curve for when you are required to sign up.
Disclaimer: We aim to make our guides as accurate as possible at the time of publication, but please bear in mind, some tax rules and laws are subject to change, and your individual circumstances may also change things. You are responsible for complying with tax laws, and should seek professional advice where appropriate.
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