MTD for Income Tax: What it means for trades and skilled workers

If you’re a self-employed tradesperson or landlord who’s not ready for Making Tax Digital (MTD) for Income Tax yet, the alarm clock’s ringing. It starts in April 2026.

MTD is a new, legally-required way to report your income tax if you’re a sole trader or private landlord (including with properties abroad). It’s being rolled out over several years, with start dates defendant on your gross income.

There’s a legal requirement to keep digital financial records. This means it’s no longer going to cut it if you use duplicate invoice or receipt books, for example, or stash receipts in the glove box of the van.

And you’ve got to use software to tell HMRC about your income and expenditure at least every three months.

It’s a big change but one that’s not just manageable but also hugely beneficial.

In this article we dig down into the specifics of what tradespeople need to know—builders, carpenters, plasterers, plumbers, and all other construction and home improvement sole traders and landlords.

Here’s what we cover:

What is MTD for Income Tax?

It’s a new HMRC regime that requires sole traders and landlords to:

• Keep Income Tax-related income and expenditure records digitally, using accounting software that’s approved for MTD by HMRC.
• Provide quarterly updates about the above income and expenditure to HMRC, again using the software (although you can make updates more frequently if you wish—each time you do, HMRC will estimate how much tax you owe).
• Send an annual tax return through the software, which finalises your tax liabilities. This effectively replaces the traditional Self Assessment tax return you’re already using, and has the same deadline of 31 January.

You will need to do this from:

• 6 April 2026 if you’re earning over £50,000 of qualifying gross income.
• 6 April 2027 if you’re earning over £30,000 of qualifying gross income.
• 6 April 2028 if you’re earning over £20,000 of qualifying gross income.

Digitising your tax is a great idea. It’ll help provide insight into your cash flow and efficiency, enabling you to spend more time serving customers and getting more profit from each job.

There’s lots of help available to get MTD sorted. If you’re just too busy, you can even hand all or part of the task to a bookkeeper or accountant (see below).

And with modern MTD-ready accounting software that features automation and AI-powered productivity assistants like Sage Copilot, you can easily manage your financial records on-the-go via your phone or a tablet, meaning you can avoid having to do it all at the weekend.

What does MTD for Income Tax apply to—and can I opt out?

Making Tax Digital replaces Self Assessment for those affected, and the switch is not voluntary.

If your income is above the thresholds mentioned earlier, and HMRC contacts you to say you need to follow the MTD rules, you cannot opt out and must start from the next full tax year (e.g. 2026/27 for those with qualifying income over £50,000).

To get started, you’ll need to register for MTD with HMRC, ensure you’re using MTD-ready software, and then activate MTD in the software (so that it doesn’t assume you’re still using Self Assessment).

There will be points-based penalties for late registration, plus late submissions and payments (although, for the four quarterly updates across 2026 and early 2027, HMRC has said it won’t penalise late submissions; this is not true for the digital tax return, though.)

Once you earn a number of penalty points, financial penalties will begin to apply, and possibly interest charges on anything you owe.

So, what does it actually apply to? MTD for Income Tax only applies to earnings and expenses for self-employment, such as the fees you charge for work, and property income, such as rents.

To be clear, it does not apply to:

• Profits or dividend income from an incorporated company (e.g. corporation tax for a Ltd company, or director dividends, although the latter should be reported on your MTD digital tax return).
• PAYE on salaries for company employees.
• Pensions or savings income or interest (although, again, this should be reported on your MTD digital tax return).
• Chargeable gains (although this can be reported on your MTD digital tax return).

Some people can apply from an exclusion from MTD for Income Tax but these are for specific reasons that make taking part in MTD impossible.

Examples of digital exclusion include disabilities, remoteness of location (e.g. you can’t get an internet connection), or religious beliefs (e.g. you’re prohibited from using the necessary technology).

If you’re already excluded from MTD for VAT for one of these reasons, and nothing’s changed since, then this will be carried across to MTD for Income Tax (although it’s a good idea to check with HMRC).

Can MTD for Income Tax help tradespeople?

Short answer: Yes. That’s the whole point of MTD. HMRC genuinely wants to make life easier for everybody.

One change for busy tradespeople and landlords used to filing annual Self Assessment returns will be meeting the quarterly MTD deadlines for updating records and filing submissions with HMRC.

Another will be ensuring income and expenditure data is recorded digitally. MTD-ready accounting apps like Sage Accounting can help with both:

• Receiving payments: Issue invoices electronically using the accounting mobile app while still on site, and take payment immediately. Or you can include a Pay Now button on the invoice itself, or a QR code to let people pay via their phones. Any payment received at that point, or at a later date, will be automatically reconciled thanks to bank feeds and automated rules. You can also automatically chase-up unpaid invoices. Crucially, the data is always digital from start to finish.
• Making purchases: Mobile apps for accounting software let you take a snapshot of any printed receipt or bill using your phone and transfer the data into your accounting automatically. Dedicated data entry automation tools like AutoEntry do all this and more, such as reconciling end of month statements from suppliers like wholesalers. Again, once the data is digitalised then you’re compliant with that aspect of MTD.

A new mindset is required, but it brings so many benefits.

Ami Copeland, CEO of the Institute of Bookkeepers, underlines this: “One person I’ve heard about only knew what expenses to claim when his wife grabbed the receipts out of his jeans pocket before they went in the wash.

“Others leave them on their dashboard so long they fade in the sun. Digital bookkeeping systems solve these problems. And they can help you get paid faster with one tap payments on your phone or QR codes.

“This is empowering for small business owners, improving cash flow and saving you lots of time chasing payments. Automating supplier information will also help you settle invoices from your wholesalers and subcontractors on time so you don’t face interest payments or jeopardise those relationships.”

And if you use cloud-based accounting software, you can store and access your financial information from anywhere—even when you’re out on a job.

Jackie Watson, Senior Manager in full-service accountancy firm Wbg’s Business Advisory Team, explains some more details about how the tech can be a game-changer:

• Receipt capture and auto-entry, as mentioned earlier, not just reducing manual entry but also errors.
• Bank feeds and auto-categorisation for different types of expense and payment, reducing time spent on bookkeeping.
• Job costing integration, so you can track your profit per job.
• Mileage tracking apps, enabling more accurate expense claims.
• Auto-matching receipts to payments to reduce errors.

Jackie says quarterly summaries will also prevent the build-up of tasks that typically happens with year end bookkeeping.

And regular tax calculations from HMRC mean you’ll know much earlier in the year how your finances look and what tax you will likely owe each January: “This will help you decide immediately whether you can buy a new van or tools, for example, rather than waiting till the end of the year.”

What about MTD for VAT—how does it affect MTD for Income Tax?

If you’re VAT registered, you’ll already know how the basics of how MTD works, as it came into effect for VAT between 2019 and 2022.

Like with MTD for Income Tax, you’re required to use MTD-ready software to record your VAT records, and use the software to submit your VAT Returns to HMRC.

However, it’s important to note that MTD for Income Tax is not related to MTD for VAT in any way. It’s a totally different system, with different reasons for using them.

You’ll need to register for MTD for Income Tax separately, activate it within your accounting software, and follow its unique set of rules. Penalties for MTD for Income Tax and MTD for VAT work in the same way, but aren’t linked. So, you could run up points and penalties for lack of VAT compliance while MTD for Income Tax is unaffected.

However, there are many tradespeople and landlords who have to use both MTD for VAT and MTD for Income Tax.

This will mean you have to make quarterly updates for MTD for Income Tax in addition to your quarterly VAT Reports.

The dates for MTD for VAT returns fall on the 7th of the month in August, November, February and May. If your VAT Returns match this then you can take care of both at the same time. However, if they do not match then you can speak to HMRC to request your VAT stagger is adjusted to match MTD for Income Tax quarterly update timing.

A further issue might still arise around accounting periods, because the VAT period (covering three calendar months) will not quite align with the Income Tax quarter (which starts and ends on the 6th of a given month).

If this is an issue, you can apply to HMRC to move your MTD for Income Tax quarters to calendar months (e.g. your first yearly Income Tax quarter for MTD will run from 1 April to 1 July).

What if I have multiple businesses for MTD?

What if you have more than one income stream from different trades or rented property?

MTD requires you to make a quarterly submission for each of your trades, plus one for all your UK property income, and one for any overseas property income.

Helen Wood, technical content writer at TaxAssist Accountants, explains: “The MTD income threshold is based on the total income from your self-employed trades, but you need to make a separate quarterly return for each one. So if you have a decorating service, a separate plastering service, and some buy-to-let property, you need to make three separate updates each quarter.”

To be clear, you don’t need to provide individual quarterly updates for each property. One suffices for all your property in the UK, and then one for overseas property.

There’s a requirement for just the one digital tax return by 31 January, bringing together all your sources of income. You might’ve heard differently, and there had been a requirement for individual End of Period Statements (EOPS) in January each year for each trade and landlord income. However, this requirement has now been dropped by HMRC.

The good news is accounting software will enable you to keep your records such as receipts separately, making these updates easy, even for people with many trades and properties. Modern AI-powered tools like Sage Accounting will prompt you when you need to make the submissions, and have all the data ready for you to check.

Yes, it really can be that easy.

How to get ready today for MTD for Income Tax

Getting organised now will give you more time to try and install new software, making things a lot smoother when your due date arrives.

Here’s a suggested action plan.

• Check if you need to use MTD. HMRC should write to you if you do, but letters and emails can easily be lost in the post or within spam filters. So, it’s down to you to be sure.
• Decide if you’ll manage it yourself, handle record-keeping but outsource submissions, or have your accountant or bookkeeper manage everything.
• Register for MTD with HMRC before April, or get your advisers to do this for you. You can start immediately, or set 2026/2027 as your starting tax year.
• Look for a software solution that fits your budget and technical comfort level. Sage offers a free plan, which is unique amongst software vendors, along with Sage Accounting plans that scale with your business as it grows.
• Open a separate business bank account if you don’t have one. This separates personal and business finances, easing bank feed integration—a key step for smooth MTD compliance.
• Start using the software to get comfortable with the process, including capturing invoices, receipts, and bank feeds. If you start MTD as soon as possible, rather than waiting until you have to in April, you can do a few test submissions to HMRC to get the hang of it. This is a terrific idea.

Should you use an accountant or bookkeeper for MTD for Income Tax?

If you use a bookkeeper or accountant to handle your accounting then there’s no reason for that to change with MTD.

The difference with MTD for Income Tax is that they’ll now have to:

• Help you digitise your accounting data at least quarterly, rather than yearly—everything from getting data from receipts and invoices, to supplier and bank statements.
• Create and submit the quarterly updates. But even more frequent monthly updates make a lot of sense because you’ll get a view of your tax position and cash flow.
• Prepare the digital tax return for you to review and sign.

If you only see your accountant once a year and hand them a load of paperwork, you’ll need to speak to them about a new schedule.

There’s no way around this, although data automation tools can help—AutoEntry can send your bookkeeper or accountant the data immediately after you take a snapshot, for example.

But increased touch points can also lead to a new kind of relationship that you can take advantage of for advice in areas such as:

• Tax planning, such as when to buy a new van or equipment for maximum tax relief.
• Checking affordability, and legal and tax requirements before taking on subcontractors
• Reviewing your finances to help improve profits and cash flow
• Complying with tax or regulatory changes in areas such as waste management, or the Construction Industry Scheme (CIS).

How to find the right MTD for Income Tax software

Decide what you want your software to do, such as automatically connecting to bank feeds, and integrating with your payments, job tracking, and receipt snapping tools, such as AutoEntry.

Also consider:

• Do you find it easy to use?
• What UK-based support and training is available?
• Subscription costs and whether the software can handle your business needs as you grow. Sage Accounting has plans ranging from free for businesses with very simple needs, all the way through to plans for growing, more sophisticated businesses, for example.

Jo Gibson, a business services partner and head of Hurst’s specialist digital team, says: “Recent advances in technology should help reduce your admin burden significantly. For example, you should be able to use your phone as your main or sole accounting tool, and even log receipts, cost jobs, track mileage, issue invoices and make HMRC submissions on it during your lunch break.”

All this information can feed directly into your accounts to reduce paperwork and accelerate cash flow, she says. “It should also give you real-time insight into your profit to drive business decisions.”

Stacey Harland, accounting & business services senior manager at UHY, says another benefit is that, “MTD software can estimate your tax liabilities based on real-time data, so you can manage your budget accordingly, then it can automatically generate quarterly updates based on your records.”

Final thoughts: MTD is a productivity boost

MTD will be a big change for some, but you’re not alone—lots of tradespeople are going through the same thing. You still have time to find and install a compatible software system, and reach out to an accountant or bookkeeper for help.

Once in place, your software will give you clearer, faster, more reliable financial processes with far less year-end stress. It should immediately start driving a more streamlined business, allowing you to focus more on doing a great job for your customers and boosting your earnings.

So, stay positive and think about how digitising your tax will boost your finances. With the right software, it could happen sooner than you think.