Do I have to use Making Tax Digital for Income Tax as a sole trader?

Full answer

MTD for ITSA replaces the single annual self-assessment with digital record-keeping and quarterly updates submitted through HMRC-recognised software. It is mandated in phases based on your gross self-employment and property income (turnover, not profit), with the highest earners brought in first and lower bands following. What changes in practice: you must keep digital records of income and expenses, send four quarterly updates during the year, and finalise the year with a final declaration that replaces the old return. It does not change how much tax you owe or the payment dates; it changes how and how often you report. Worked example: a sole trader with GBP 95,000 turnover and GBP 60,000 taxable profit will report four quarterly summaries plus a year-end declaration. The tax itself is unchanged: after the GBP 12,570 Personal Allowance, GBP 37,700 is taxed at 20% (GBP 7,540) and GBP 9,730 at 40% (GBP 3,892), totalling GBP 11,432 income tax, plus Class 4 NI of GBP 2,262 at 6% on the basic band and GBP 194.60 at 2% above GBP 50,270. The reporting cadence is new; the GBP 11,432 plus GBP 2,456.60 liability is not. Check your turnover against the current mandation threshold and your phase-in date, because these determine exactly when you must join. Use the self-employed-tax calculator to estimate the liability you will be reporting, and confirm your start date and approved software at gov.uk.

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