My income has dropped since 2024–25. Am I still in MTD?

Yes. Your start date was fixed by your qualifying income in the 2024–25 tax year, and a fall in income afterwards does not remove you for 2026–27. This catches people who had one unusually strong year and have since gone quieter, or who sold a rental property. HMRC reassesses qualifying income each year from your returns, so a sustained drop can take you back out in a later year, but it does not undo the year you are already in. Until HMRC tells you otherwise, keep the digital records and keep sending the quarterly updates — assuming yourself out is how people end up with a points balance in 2027–28.

Is my spreadsheet really not good enough any more?

Not on its own. MTD requires digital records held in software that can talk to HMRC and submit the quarterly update. A spreadsheet cannot do that unaided. There is a middle route: bridging software sits on top of a spreadsheet and files from it, so if your spreadsheet is genuinely well-built you do not necessarily have to abandon it. In practice most sole traders are better off moving properly to bookkeeping software, because the bank feed removes the manual typing that made the spreadsheet a chore in the first place — and the quarterly rhythm punishes manual data entry four times as often as an annual return did.

Do I still have to file a Self Assessment return?

Yes, and this is the misunderstanding that worries us most. The quarterly updates do not replace your tax return. For 2026–27 you still file a return by 31 January 2028 and still pay any tax owed on that date. The quarterly updates are in-year summaries; the return is where reliefs, allowances, adjustments and any other income get pulled together into an actual liability. Think of the updates as showing HMRC your working during the year, and the return as the answer at the end of it. Four updates plus a return is five submissions a year where you previously had one.

What happens if my first update is simply wrong?

Very little, because the updates are cumulative. Each one restates the year from 6 April, so an error in the August update is corrected by the November one as soon as you fix the underlying record in your software. You do not file an amendment for a quarterly update. This is deliberate on HMRC's part and it takes a great deal of pressure off the first submission — the figures need to be your honest best position at the time, not audited. The number that has to be right is the one on your tax return, and you have until 31 January 2028 to get there.

I have a job as well as self-employment. Does PAYE income count?

No. Qualifying income means gross income from self-employment and from property only. Employment income taxed under PAYE, dividends, savings interest and pensions are all excluded from the test, even though they still go on your tax return as normal. So someone earning £45,000 in a job with £12,000 of freelance turnover has qualifying income of £12,000 and is nowhere near the £50,000 threshold. It works the other way too: the £50,000 test ignores how much tax you already pay through PAYE, so a large day job does not exempt your self-employment from MTD once that side passes the threshold.

Sole traders and the MTD deadline: are you ready?

Reacting to: Sole traders hold off on HMRC's Making Tax Digital scheme (This Is Money) →

Making Tax Digital for Income Tax has been live since 6 April this year for anyone self-employed or letting property with qualifying income over £50,000 — and the first quarterly update is due to HMRC on 7 August. According to new Sage research covered by This Is Money, more than half a million affected sole traders may not be ready. Only 8% are currently using accounting software to keep digital records, seven in ten don't feel confident they know what compliance actually involves, and just 37% could correctly name the 7 August date. One finding says it plainly: more people polled could name football's transfer deadline day than the tax deadline that actually affects their business.

The deadline, precisely

The date is Friday 7 August 2026. The update covers the quarter from 6 April to 5 July 2026. HMRC's own figure is that more than 864,000 sole traders and landlords are in scope for this first one. Craig Ogilvie, HMRC's Director of Making Tax Digital, called it "a landmark moment for the tax system" — which is true, and also slightly beside the point if you're one of the people who has never opened a piece of accounting software in your life.

Two things this update is not. It is not a tax return: you still file a Self Assessment return by 31 January 2028 for the 2026–27 year, and you still pay your tax on that date. And it is not a payment: nothing leaves your bank account on 7 August because of MTD. It is a summary of income and expenses, sent from software to HMRC, and for most people it takes minutes once the bookkeeping behind it is straight.

Who is actually in scope

You are in for 2026–27 if your qualifying income was over £50,000 in the 2024–25 tax year. Three details in that sentence catch people out.

The first is the word qualifying. It means gross income from self-employment and from property, added together, before any expenses. It is turnover, not profit. A sole trader with £58,000 of invoices and £21,000 of costs has qualifying income of £58,000, not £37,000 — so they are in scope even though their taxable profit is nowhere near the threshold.

The second is the year. HMRC tested your 2024–25 return, filed by 31 January 2026, to decide whether you start in April 2026. A good year two years ago pulls you in even if this year is quieter.

The third is that self-employment and property stack. Neither on its own has to break £50,000; the combined figure is what counts. A freelancer turning over £34,000 with £19,000 of rent is at £53,000, and in.

Why so many people missed this

MTD for Income Tax has been announced, delayed and re-phased for years, which has left plenty of sole traders assuming — reasonably, if wrongly — that "eventually" is still a way off. It isn't. The clock on your first quarterly update started on 6 April 2026.

There are also no penalty points for missing a quarterly update deadline in the 2026–27 tax year at all. That grace is genuine and worth knowing about, but it has been widely misread as "it doesn't start until next year". It does. The obligation to keep digital records applies now; only the points are suspended, and only for this year.

What "digital records" actually means

A spreadsheet on its own does not do it. You need MTD-compatible software that keeps a running digital record of income and expenses, connects to HMRC's systems, and submits the quarterly summary. Every transaction between 6 April and 5 July 2026 needs to be categorised and sitting in that software before you can send anything.

HMRC does not see your individual receipts or invoices. The update carries category totals only — turnover, and your expense headings. That surprises people who assume MTD means handing over the whole ledger four times a year. It doesn't. It means the totals have to be right four times a year instead of once.

The bit almost everyone gets wrong: the updates are cumulative

This is the single most common misunderstanding, and it is worth reading twice. The four standard update periods are not four separate quarters. Each one runs from the start of the tax year:

6 April to 5 July — due 7 August
6 April to 5 October — due 7 November
6 April to 5 January — due 7 February
6 April to 5 April — due 7 May

So your November update restates the figures you sent in August, plus the next three months. That is actually good news: if you got something wrong in the first update, the second one corrects it automatically. You do not file an amendment. You fix the record in your software and the next update carries the corrected year-to-date position.

If your accounting period runs 1 April to 31 March, you can elect to use calendar quarters instead, which spares you the 5th-of-the-month boundaries.

Putting real numbers on it

An illustrative example — not a client, and figures chosen to be easy to follow. Take a self-employed graphic designer whose 2024–25 invoices came to £68,000. Over the £50,000 line, so she is in MTD from 6 April 2026.

Her first quarter, 6 April to 5 July 2026, looks like this:

Income invoiced: £17,400
Subcontracted design work: £2,100
Studio rent, three months at £300: £900
Travel: £430
Software subscriptions: £320
Phone and internet: £180
Professional insurance: £120
Total expenses: £4,050 — profit for the quarter £13,350

Those category totals are what goes to HMRC by 7 August. Nothing else. Her November update will show 6 April to 5 October — the £17,400 and £4,050 above, plus whatever the next three months bring.

Now the part that makes the quarterly rhythm worth the bother. If her year lands at £52,000 of profit, her 2026–27 bill works out as: income tax of £7,540 on the £37,700 basic-rate band at 20%, plus £692 on the £1,730 falling into the 40% band, giving £8,232. Class 4 National Insurance adds 6% on that same £37,700 (£2,262) plus 2% on the £1,730 above £50,270 (£34.60), giving £2,296.60. Class 2 is treated as paid because her profits are over £7,105, so there is nothing to hand over there. Total: £10,528.60, due 31 January 2028 — followed by payments on account for 2027–28 of £5,264.30 each in January and July.

She can see that number coming from her second update onwards. That is the actual prize here, and it is why we push clients towards it rather than treating it as a compliance chore: four times a year, the software already knows roughly what you owe. Our guide to payments on account explains why knowing that figure in October rather than January changes what you can do about it.

If you miss 7 August

Submit late anyway, and do it soon. There are no penalty points for a late quarterly update in 2026–27, so a missed August update does not cost you money by itself. What it costs you is the running total — miss one and the next update has to reconstruct six months of bookkeeping instead of three.

Tax paid late is a different matter entirely, and the penalties there are real. For 2026–27, nothing is charged if you pay within 15 days of the due date; between 16 and 30 days it is 3% of the outstanding tax; past 30 days it is 3% of what was owed at day 15, plus 3% of what was owed at day 30, plus a further 10% annualised charged daily from day 31. In this first year of the new penalties you get 30 days rather than 15 before that starts. On top of any penalty, HMRC charges late payment interest at 7.75%, the rate that has applied since 9 January 2026 — the Bank of England base rate of 3.75%, held again on 29 July 2026, plus four points.

Your checklist this week

Confirm you're in. Add gross self-employment income and gross property income from your 2024–25 return. Over £50,000 means you started on 6 April 2026.
Check you're signed up. Being in scope and being signed up with HMRC are two different things. Software cannot submit until the sign-up is done.
Get compatible software in place and connect it to your bank so the quarter populates itself.
Categorise 6 April to 5 July. Every transaction, into an expense heading. This is the actual work.
Reconcile to your bank statement at 5 July. If the closing balance agrees, your quarter is probably complete.
Submit, and diarise 7 November for the next one.

Where this goes next

This is not a one-off scramble. From 6 April 2027 the threshold drops to £30,000, tested on 2025–26 income. From 6 April 2028 it drops to £20,000, tested on 2026–27 income — which is the year you are in right now. And from 2027–28, the penalty points start counting: four missed quarterly deadlines brings a £200 penalty, and another £200 each time after that.

If you're unsure where you stand, or the quarterly rhythm is more admin than you have room for, that is exactly what our Making Tax Digital service and Bookkeeping team take off your plate — records compliant, submissions moving, without you having to become a software expert on top of running the business. If you'd rather just establish whether it applies to you, our MTD checker answers that in four questions, and the full MTD guide covers the sign-up mechanics.

Half a million sole traders aren't ready for the MTD deadline. Are you?