MTD for Sole Traders: Free Software & Preparation Guide

If you are a sole trader, you are probably used to submitting a single Self Assessment tax return once a year. Making Tax Digital (MTD) for Income Tax changes this process entirely.

Instead of one annual return, you will need to keep digital records and send quarterly updates to HMRC. While this sounds like a lot of extra work, preparing for MTD does not have to be complicated or expensive.

Do the New Rules Apply to You?

MTD for Income Tax is being rolled out in phases based on your total gross income (your income before any expenses are deducted).

• From 6 April 2026: MTD is mandatory if your combined income from self-employment and property is over £50,000.
• From 6 April 2027: MTD is mandatory if your combined income is over £30,000.

If your income is below £30,000, you can join voluntarily, but it is not currently required by law.

What You Need to Do

If MTD applies to you, you must do three things:

1. Keep digital records: You must record all your business income and expenses digitally. Paper receipts in a shoebox are no longer enough.
2. Send quarterly updates: Every three months, you must send a summary of your income and expenses to HMRC using MTD-compatible software.
3. Submit a final declaration: At the end of the tax year, you submit a final declaration, which replaces the traditional Self Assessment tax return.

You Do Not Need Expensive Software

When sole traders hear about MTD, many assume they must buy complex accounting software like Xero or QuickBooks. If your business is simple, this software can be an unnecessary expense.

You can still use spreadsheets.

If you currently use Microsoft Excel or Google Sheets to track your finances, you are already keeping digital records. To comply with MTD, you simply need to connect your spreadsheet to HMRC using bridging software.

Bridging software reads the totals from your spreadsheet and securely submits them to HMRC, satisfying the digital link rule without forcing you to change how you work.

Your MTD Preparation Checklist

To get ready for MTD, follow these simple steps:

1. Check your income: Look at your last tax return to see if your gross income is over the £50,000 or £30,000 thresholds.
2. Digitize your records: If you still use paper ledgers, start moving your income and expenses into a spreadsheet.
3. Choose your software: Decide if you want full accounting software or if you prefer to keep your spreadsheet and use bridging software like Abridge.
4. Mark your calendar: Be aware of the new quarterly deadlines so you do not miss a submission.