Making Tax Digital: how ready are you?

For years, many sole traders have treated self-assessment as a once-a-year event: a task that only really needs to be addressed when December (or January) rolls around.

Making Tax Digital (MTD) is changing things.

If you earn above a certain threshold, what was once an annual task becomes an ongoing one, with reporting shifting from retrospective to real time. For many sole traders, it’s less a technical hurdle than a mental one: it’s about building new habits, not just learning new rules.

So, with that in mind, the first question to ask yourself is a simple one: does MTD apply to me? 

As of April 6, MTD affects sole traders and landlords whose qualifying income (total earnings from self-employment and/or property before expenses) crosses the following thresholds:

• £50,000 in 2024/25 - comply from April 2026

• £30,000 in 2025/26 - comply from April 2027

• £20,000 in 2026/27 - comply from April 2028

This is based purely on income, not profit, and also includes combined income streams, so if you freelance and rent out a property, those figures should be added together.

What actually changes under MTD?

At a glance, the shift seems simple: keep digital records and submit updates more often. In practice, it changes how your tax position is recorded throughout the year rather than being calculated retrospectively.

You’ll be required to:

• Keep digital records of income and expenses

• Submit quarterly summaries to HMRC

• File a final declaration at year-end

• Use MTD-compatible software for all of the above

The familiar January deadline doesn’t disappear, but it’s no longer the single moment that defines your entire tax year.

From catching up to keeping up

Most sole traders fall into one of two camps: they stay loosely organised throughout the year, or they do a concentrated push when the deadline approaches.

MTD removes that flexibility. Because submissions are quarterly, the system rewards consistency. If your records are up to date, each submission will become routine. If they’re not, you’re effectively dealing with four mini-deadlines instead of one. 

Readiness isn’t just about whether you can comply, it’s about whether your current way of working fits this new rhythm.

By answering a few simple questions, you’ll get a better idea of how prepared you are. Answer honestly: this isn’t about scoring well, but about spotting potential gaps before they become an issue.

Give yourself a score for each answer:  A = 1 point | B = 2 points | C = 3 points

1. How do you currently keep records?

A. Paper notes

B. Spreadsheets

C. Accounting software

2. When do you typically update your records?

A. Once a year

B. Every few months

C. Regularly (monthly or more often)

3. If HMRC asked for a summary of your last 3 months today, how easily could you provide it?

A. It would take a lot of time to pull together

B. I could do it, but with some effort

C. I could sort it quickly

4. Are your business and personal finances clearly separated?

A. No

B. Partially

C. Yes

5. Are you currently using (or planning to use) software to submit updates to HMRC?

A. No, I wasn’t aware I needed to

B. I’ve thought about it, but haven’t taken action

C. I’m already using or actively exploring MTD-compatible software

And now for the reality check:

5-8 points - At risk of a difficult transition

The shift to MTD will likely feel significant. You’re moving from reactive, manual processes to structured, digital reporting. Starting early could make a big difference.

9-12 points - On the right track, but there are some inconsistencies

You have some elements in place, but MTD could expose gaps in consistency. Tightening your processes now should help prevent issues later.

13-15 points - Already operationally aligned with MTD

Your current setup already mirrors how MTD works. The transition will be more about continued compliance than behavioural change.

Where MTD might catch you out

As noted above, for most sole traders the challenge with MTD isn’t the rules themselves, it’s how they can play out in practice.

The friction tends to show up in small, everyday moments:

1. Putting it off until it’s mandatory

By the time MTD applies, it’s also expected that you’ll be keeping digital records and submitting updates. Leaving it too late could turn what should be a gradual adjustment into a rushed transition.

2. Relying on existing systems (without checking if they’re compliant)

Your existing setup may work under MTD, but only if it’s properly connected to HMRC-compatible software. If it isn’t, even well-organised records might not meet the requirements.

3. Underestimating the impact of quarterly reporting

Submitting updates every three months sounds manageable, but it changes how often you need to be up to date. If your records fall behind, each deadline becomes a catch-up exercise rather than a quick submission.

The role of software

MTD effectively makes software your interface with HMRC. That doesn’t mean you need the most advanced option on the market, but your choice could shape how easy (or difficult) compliance feels.

Broadly, your options fall into three camps:

• Full accounting software - automates quarterly updates and provides visibility

• Bridging tools - lets you continue using spreadsheets while staying compliant

• Integrated banking tools - reduces admin by linking payments and record-keeping in one place

The right choice depends less on the features and more on how you already work (or want to work moving forward). 

Read our comprehensive guide to compatible software to learn more. 

The bottom line

MTD has been designed to tackle one of the biggest pain points of self-employment: uncertainty. With regular updates and digital records, you should get a clearer view of what you owe throughout the year. That means less reliance on last-minute calculations and fewer surprises when deadlines come around. 

If you’re wondering what to do first, start with the basics:

• Confirm whether you cross (or are likely to cross) the income threshold

• Decide whether to adopt software or adapt your current setup

• Start keeping digital records now, even if it’s not yet mandatory

Treat MTD as a compliance chore, and there’s every chance the transition will feel at least a little bit stressful. But treat it as an opportunity to upgrade your systems, and it could make running your business smoother and more predictable.