What Sole Traders Need to Know About Making Tax Digital

Thousands of UK sole traders are still unaware of one of the biggest tax system changes in decades: HMRC’s Making Tax Digital for Income Tax (MTD ITSA), which begins its phased rollout in April 2026.

For many of our energy assessor and retrofit members, particularly those operating as sole traders, these changes will introduce new quarterly reporting duties and mandatory digital record‑keeping. While the initial changes only apply to those earning over £50,000 from 6th April 2026, this threshold will fall to £30,000 in 2027, and HMRC plans to reduce it further to £20,000, meaning most sole traders will eventually be brought into scope.

What Is Making tax Digital and what’s changing?

MTD for Income Tax changes how the traditional annual Self-Assessment is submitted in the year (for those who meet the income thresholds). Under MTD for Income Tax Self assessment (ITSA), will still:

• complete an end-of-year finalisation process
• confirm other income (interest, dividends, PAYE etc.)
• finalise their tax liability.

The Self-Assessment framework still exists, but the reporting process becomes:

1. Quarterly updates – summaries on how your business is doing
2. Year End “Final Declaration” replacing the Self Assessment form  – this will include all adjustments, reliefs and other income sources and finalised figures.

This system aims to modernise tax administration, improve accuracy, and give sole traders more real‑time visibility of their tax position. HMRC states the change will “make it easier for self‑employed people and landlords to stay on top of their tax affairs.” [gov.uk]

What are the income thresholds and when do they come in to effect?

MTD for Income Tax will apply in phases based on your “qualifying income”, which is:

We’ve broken down the various income types below so you can see what counts towards your threshold:

We’ve provided a breakdown of the current timeline qualifying income thresholds below:

For 2026-27 the qualifying Income Threshold could be “over £20,000”. This is the government’s current intention, however it has not yet been fully legislated or given a confirmed start date.

If the threshold does drop further, the vast majority of self-employed sole traders will fall under MTD rules.

How Will This Affect Sole Traders who work as Energy Assessors or Retrofit Professionals?

If you are an energy assessor or retrofit professional that works as a sole trader and you fall into one of the above thresholds, you fall under the new MTD rules. Therefore, you’ll need HMRC‑recognised software capable of:

• Keeping complete digital records
• Sending quarterly updates – of summary updates of income and expenses, not full tax calculations
• Creating compliant year‑end submissions

What if I use spreadsheets?

Spreadsheet users will need bridging software, and paper‑based bookkeeping will no longer be sufficient. However, paper records can still be kept for reference, but digital records must also exist in functional compatible software – once you are in scope.

What should I do to prepare?

1. Check whether you fall into the April 2026 group – If your gross income was over £50k in 2024–25, you’ll be required to join MTD from 6 April 2026.
2. Consider shifting to digital record‑keeping early – MTD‑compatible systems such as Xero, QuickBooks, and FreeAgent are widely used in the sector.
3. Start building consistent bookkeeping habits – This makes transitioning much easier when your start date arrives.

MTD represents a significant shift for sole traders. While some administrative burden is inevitable, preparing early will make the transition smoother, and help ensure you aren’t caught off‑guard when/if thresholds drop to £20,000 in the coming years.

Next Steps

For further information, to check when you need to get ready or sign up please refer to the official government guidance at:

www.makingtaxdigital.campaign.gov.uk

Alternatively, you may wish to seek advice from a qualified accountant. Please note that Elmhurst Energy does not provide tax advice.