Making Tax Digital for Trades: What You Need to Do Before April 2026

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) starts on 6 April 2026. If you're a sole trader or landlord earning over £50,000 a year, this affects you directly.

No more annual tax returns cobbled together from a shoebox of receipts in January. HMRC wants quarterly digital updates, submitted through compatible software. Miss a deadline and you'll face penalties.

This guide explains exactly what's changing, who's affected, and what you need to do before April.

What is Making Tax Digital?

Making Tax Digital is HMRC's programme to move the UK tax system online. VAT-registered businesses have been filing digitally since 2019. Now it's expanding to income tax.

Instead of filing one Self Assessment return per year, you'll submit quarterly updates to HMRC through MTD-compatible software. At the end of the year, you submit a final declaration (replacing the annual tax return).

The key dates:

"Qualifying income" means your gross turnover from self-employment and/or property income — before expenses. If you're a plumber turning over £60K and spending £15K on materials and van costs, your qualifying income is £60K, not £45K.

Who's affected?

You need to comply if all three apply:

1. You're registered for Self Assessment
2. You have income from self-employment or property (or both)
3. Your qualifying income exceeds £50,000 (from April 2026)

This catches most established tradespeople. If you're a sole trader electrician, plumber, gas engineer, builder, or any other trade earning over £50K gross, you're in scope.

Who's NOT affected yet?

• Limited companies — MTD for Corporation Tax has no confirmed start date
• Partnerships — delayed, likely 2027 or later
• Sole traders under £50K — not until April 2027 (£30K threshold)
• Sole traders under £30K — not until 2028 at the earliest

If you're a limited company, you're safe for now. But if you're a sole trader thinking about incorporating — this is one more reason to have that conversation with your accountant.

What changes in practice?

Before MTD (current system)

1. Keep records however you like (spreadsheet, receipts in a drawer, napkins)
2. Add it all up in January
3. File one Self Assessment return by 31 January
4. Pay your tax bill

After MTD (from April 2026)

1. Keep digital records in MTD-compatible software
2. Submit quarterly updates to HMRC (every 3 months)
3. Submit an End of Period Statement (EOPS) after year end
4. Submit a Final Declaration (replaces the tax return)

The quarterly deadlines:

You then have until 31 January following the tax year to submit your Final Declaration and pay.

What counts as "digital records"?

HMRC requires you to keep digital records of:

• All business income — every invoice, every payment received
• All business expenses — materials, fuel, tools, insurance, vehicle costs
• The date, amount, and category for each transaction

You can't just photograph receipts. The data must be in software that can communicate with HMRC's systems via their API. A spreadsheet alone won't cut it — unless it's linked to bridging software that submits to HMRC.

What software do you need?

HMRC maintains a list of MTD-compatible software. You need one of:

1. Accounting software (Xero, QuickBooks, FreeAgent) that connects to HMRC directly
2. Bridging software that takes data from a spreadsheet and submits it
3. Job management software with accounting integration that keeps your records digital from the point of sale

Option 3 is the cleanest for trades. If your invoices are already digital, your expenses tracked, and everything syncs to Xero or QuickBooks — you're already compliant. No double entry, no manual uploads.

What are the penalties?

HMRC is introducing a new points-based penalty system for MTD. It works like penalty points on your driving licence.

Late submission penalties:

Points expire after 24 months of compliance (submitting everything on time).

Late payment penalties:

The interest rate is set at the Bank of England base rate plus 2.5%. As of early 2026, that's around 7%.

How to prepare: the 6-step checklist

Step 1: Check if you're in scope

Log into your HMRC online account. If your Self Assessment return for 2024/25 shows self-employment or property income over £50,000, you're in scope from April 2026.

Not sure? Ask your accountant. If you don't have an accountant and you're earning over £50K, get one.

Step 2: Choose your software stack

You need two things working together:

1. Something to create and track invoices/expenses — this is where your daily records live
2. MTD-compatible accounting software — this submits to HMRC

For tradespeople, the most common stacks are:

If you're already using job management software that syncs to Xero or QuickBooks, you're 80% there.

Step 3: Set up the accounting integration

If you're using Muster, Tradify, ServiceM8, or similar — connect it to your Xero or QuickBooks account. Every invoice you create should automatically appear in your accounting software.

Test it: create an invoice, check it appears in Xero/QuickBooks within minutes. If it does, your income records are digital.

Step 4: Start tracking expenses digitally

This is where most tradespeople fall down. Income is easy — you send invoices. Expenses are harder because they happen throughout the day:

• Fuel at the petrol station
• Materials from the wholesaler
• Tool purchases
• Insurance renewals
• Van MOT and servicing

Get a receipt scanning app or use your accounting software's mobile app. Photograph every receipt the day you get it. Categorise it immediately. Don't let receipts pile up.

Step 5: Do a dry run

Before April, run through one "quarter" manually:

1. Check all your income for the last 3 months is in your software
2. Check all expenses are captured and categorised
3. Ask your accountant to do a test submission (HMRC has a sandbox environment)

If anything is missing, you've got time to fix it.

Step 6: Set calendar reminders

Put the quarterly deadlines in your calendar now. Better yet, set reminders 2 weeks before each deadline. Your accountant should handle the actual submissions, but you need to make sure your records are up to date before they can.

Common questions from tradespeople

I use a spreadsheet for everything. Is that enough?

No. A standalone spreadsheet isn't MTD-compatible. You'd need bridging software to submit from it, and you'd still need to maintain digital records to the required standard. It's easier and cheaper to just use proper software.

My accountant handles everything. Do I need to do anything?

Your accountant can submit the quarterly updates and final declaration on your behalf. But they need your records to be digital and up to date. If you're still handing over carrier bags of receipts, that workflow is dead.

I'm VAT registered and already doing MTD for VAT. Is this different?

Yes. MTD for VAT covers your VAT returns. MTD for ITSA covers your income tax. They're separate obligations with separate submissions. If you're already MTD-compliant for VAT, you understand the process — but you'll have additional quarterly submissions for income tax.

What if my income fluctuates around the £50K threshold?

HMRC will determine your obligation based on your qualifying income in the previous tax year. If you earned £52K in 2024/25, you're in scope for 2026/27 even if your income drops. Check annually.

Can I use free software?

Some MTD-compatible software has free tiers (e.g., HMRC's own basic tool for simpler cases). But for a trade business with multiple job types, materials, subcontractors, and vehicle expenses — free tools won't cut it. Budget £20–50/month for accounting software.

Does my job management software need to be MTD-compatible?

No. Your job management software needs to sync with accounting software that IS MTD-compatible. Think of it as a chain: jobs → invoices → accounting software → HMRC. The accounting software is the link to HMRC, not the job management tool.

How Muster helps with MTD compliance

Muster isn't accounting software and doesn't submit to HMRC directly. What it does is keep your business records digital from the moment a job is created:

• Every job has an invoice — created from the job data, not typed separately
• Invoices sync to Xero or QuickBooks — automatically, no manual entry
• Expenses can be logged against jobs — materials, subcontractor costs, travel
• Payment tracking via Muster Pay — you know exactly what's been paid and what's outstanding
• CIS deductions calculated — if you work as a subcontractor, CIS is handled

The result: your accountant opens Xero and everything is already there. No chasing, no reconciling, no missing invoices. That's the "digital records" HMRC wants — and it happens without you changing how you work.

The bottom line

MTD for ITSA is happening in 5 weeks. If you earn over £50K from self-employment, you need:

1. MTD-compatible accounting software (Xero or QuickBooks)
2. Digital records of all income and expenses (not spreadsheets, not receipts in a drawer)
3. Quarterly submissions starting from your first quarter after 6 April 2026

The easiest way to comply is to use job management software that syncs to your accounting tool. Your invoices are already digital. Your expenses are already tracked. Your accountant submits quarterly instead of annually. Nothing about your daily work changes.

The hardest way to comply is to ignore it until July when your first quarterly update is due.