Making Tax Digital for Trades: Who's In, and From When

↑ Part of the Tax & VAT series · The UK Trade's VAT & CIS Guide

Making Tax Digital (MTD) for Income Tax went live on 6 April 2026. If you're a sole trader whose gross income from self-employment (plus any property income) is over £50,000, you now have to keep digital records and send HMRC a quarterly summary through MTD-compatible software, instead of one Self Assessment return a year. Trades over £30,000 join in April 2027, and over £20,000 in April 2028. The figure that decides it is your turnover, not your profit — which catches a lot of trades who pass materials through their books.

This page sits under our main VAT & CIS guide. MTD for VAT is older news: every VAT-registered business has had to file VAT returns through software for years.

Part 1Who has to do it, and from when

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The test is your qualifying income: gross income from self-employment and property combined, before expenses. HMRC looks at the tax return you've already filed to decide when you're in.

• Over £50,000 — in now, since 6 April 2026.
• Over £30,000 — in from April 2027.
• Over £20,000 — in from April 2028.

Turnover, not profit, is the trap for trades. A builder who buys £40,000 of materials on a £65,000 turnover only keeps £25,000 before overheads, but it's the £65,000 that counts. If materials flow through your invoices, you're closer to these thresholds than your profit suggests.

Part 2What actually changes

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• Digital records. Every business income and expense recorded in software (or a spreadsheet bridged into software), not a carrier bag of receipts sorted in January.
• Quarterly updates. Four summaries of income and expenses a year, each due by the 7th of the month after the quarter ends. They're running totals, not four mini tax bills — you're telling HMRC the picture, not paying on it.
• A final declaration after year end, which replaces the old Self Assessment return and is where reliefs and adjustments go. That's when the tax is worked out, as before.

The tax you pay doesn't change. What changes is that bookkeeping has to happen through the year, in software, instead of once in a panic.

Part 3What it means in practice for a trade

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The realistic reading: the January shoebox era is ending, on a timetable. The trades who find MTD painless are the ones whose paperwork is already clean at the source — costed quotes, proper invoices, materials and labour recorded per job as they happen. If your records start life as guesses on the back of a fag packet, quarterly deadlines turn one January headache into four.

Two practical moves:

• Pick MTD-compatible accounting software (Xero, QuickBooks, FreeAgent and others are all recognised; HMRC keeps a list of compatible software on GOV.UK, including some free options for simple businesses). If you have an accountant, ask what they support before you choose.
• Fix the source documents. Software can only digitise what you give it. Quotes and invoices with clean figures — labour, materials, VAT and CIS all correct — flow straight into your records. Scribbled numbers don't.

Common questionsMaking Tax Digital FAQ

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Does MTD change how much tax I pay?

No. Same tax, same rates, same reliefs. It changes how you keep records and how often HMRC hears from you: quarterly updates plus a final declaration, instead of one annual return.

I'm under £50,000. Can I ignore it?

For now, but check the timetable: over £30,000 joins in April 2027 and over £20,000 in April 2028, and it's gross income, not profit. Most established full-time trades will be inside the net by 2028.

What are the penalties?

Late quarterly updates earn penalty points, and at four points you get a £200 fine, with more for continued lateness. Late payment penalties are separate and unchanged in spirit: the longer you sit on it, the worse it gets.

Do I need an accountant for MTD?

No, the software is designed for owners to use. But an accountant who already uses MTD software can set you up in an afternoon, and materials-heavy trades near a threshold are exactly who should get proper advice.

Is TradeDraft MTD software?

No, and we don't pretend to be. TradeDraft gets the quote right — VAT, CIS, reverse charge and your margin, worked out properly. Those clean figures are what your accounting software needs from you. Quoting tool and books each doing their own job, done well.

This guide is general information for UK tradespeople, current to the best of our knowledge in 2026. Rules, rates and thresholds change, and how they apply depends on your specific circumstances. It is not tax, accounting or legal advice. Always confirm your position with HMRC, a qualified accountant or a solicitor before relying on it. TradeDraft accepts no liability for decisions made on the basis of this guide. Questions: hello@tradedraft.co.uk.

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