Do I Need MTD Software as a UK Sole Trader in 2026?
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Introduction
If you’re a sole trader trying to get your head around Making Tax Digital for Income Tax, you’re probably asking two things: does this apply to me, and what’s it going to cost?
The important thing to know first: MTD for Income Tax is no longer coming — it’s here. The first phase became mandatory on 6 April 2026 for sole traders and landlords with qualifying income above £50,000. If that’s you, you should already be keeping digital records, and your first quarterly update deadline has already passed.
The reassuring part is that compliance doesn’t have to cost anything. There are free, HMRC-recognised options, and a route for those who’d rather stay in spreadsheets.
This guide covers who’s in scope and from when, what counts towards the threshold, what compliant software actually has to do — including one requirement that’s been scrapped but still appears in most guides — and which options are worth considering.
What Is MTD for Income Tax?
Making Tax Digital for Income Tax Self Assessment is HMRC’s programme to change how self-employed people and landlords report income. Instead of one Self Assessment return in January, you send quarterly updates through compatible software, then a Final Declaration at the end of the tax year.
You keep digital records throughout the year and report income and expenses four times annually, rather than summarising once.
Dates, thresholds and requirements have shifted more than once during this rollout. Always check the current position on GOV.UK before acting on anything here.
Who Is in Scope Right Now?
£50,000 — Live Since 6 April 2026
MTD for Income Tax has been mandatory since 6 April 2026 for sole traders and landlords whose qualifying income exceeds £50,000 per tax year.
If you’re over that threshold, check where you stand on quarterly updates. For a standard tax-year-aligned set of periods, the deadlines are typically 7 August, 7 November, 7 February and 7 May — meaning the first update, covering 6 April to 5 July 2026, was due by 7 August. Confirm your own quarterly dates on GOV.UK or through your software, and if you’ve missed one, deal with it now rather than at year end.
£30,000 — April 2027
The next phase brings in qualifying income above £30,000 from 6 April 2027. A further phase covering income above £20,000 is planned for April 2028. Confirm the current schedule on GOV.UK.
What Counts as Qualifying Income?
This is where people get caught out. Qualifying income is not your profit — it’s your gross income from self-employment and property combined, before deducting any expenses.
So a sole trader turning over £55,000 with £20,000 of costs has qualifying income of £55,000. In scope, even though taxable profit is far lower.
Counts towards the threshold:
- Self-employment income from your trade, profession or vocation
- Property income, UK or overseas
Does not count: employment income through PAYE, dividends, savings interest and pensions. Only self-employment and property income go into the calculation.
Are There Exemptions?
Some individuals can apply for exemption where MTD isn’t reasonably practicable — for example due to age, disability or lack of internet access. There’s also a specific exemption for practising members of certain religious societies whose beliefs are incompatible with electronic record-keeping. Check GOV.UK for the current criteria.
What Compliant Software Must Actually Do
Not every accounting app qualifies. To be compliant, software must:
- Keep digital records of your income and expenses — no paper ledger as your primary record
- Submit quarterly updates to HMRC directly through the MTD API
- Submit your Final Declaration — the digital replacement for your Self Assessment return
The Requirement That No Longer Exists
You will see a fourth item on almost every other guide to this subject: the End of Period Statement, or EOPS.
EOPS has been removed. Following the 2023 Autumn Statement, HMRC scrapped it from MTD for Income Tax, on the basis that the details it captured were already covered by the Final Declaration. The functions it served — year-end source adjustments, confirmations and capital allowance claims — have been absorbed into the Final Declaration instead.
This applies from the outset of mandation. There’s no transitional period where both run in parallel.
The change wasn’t widely publicised, which is why EOPS still appears in older articles, some software training materials and even legacy HMRC developer documentation. If a guide tells you that you need to file an EOPS, it’s describing a version of MTD that was abandoned before it started.
One More Thing About the Final Declaration
It must be submitted through MTD-compatible software. You cannot file it through HMRC’s existing Self Assessment online service, even if you’ve used that portal for years. The deadline is 31 January following the end of the tax year — the same date as now, but a different route.
HMRC maintains an official list of software recognised for MTD for Income Tax on GOV.UK. Use that rather than a software company’s own marketing claims, and note that MTD for VAT approval does not mean a product is approved for MTD for Income Tax — they’re separate programmes with different technical requirements.
Do You Need to Buy Software? Not Necessarily
Zoho Books’ Free Plan
Zoho Books offers a free plan that is HMRC-recognised for MTD for Income Tax. For sole traders who qualify, that means zero software cost while remaining compliant.
The free plan handles MTD-compatible quarterly submissions, prepares and files your SA100 with HMRC, and generates SA103F and SA103S self-employment pages from your bookkeeping.
The caveat that decides it: the free plan has a turnover eligibility threshold, and we haven’t been able to confirm the current figure — sources quote different numbers. Verify it directly on Zoho’s UK pricing page, selecting the tab for your business structure, before relying on it.
If you exceed the limit, Zoho Books’ paid plans are £10 a month billed annually for Standard (£12 monthly), £20 for Professional and £25 for Premium — and crucially they’re priced per organisation rather than per user, so bringing in an accountant doesn’t change the bill.
FreeAgent, QuickBooks and Xero
All three are widely used and expected to be MTD for Income Tax compatible. None offers a free plan in the way Zoho Books does, but the entry prices are lower than usually quoted:
- FreeAgent is free if you bank with NatWest, Royal Bank of Scotland, Ulster Bank or Mettle — Mettle and Ulster are frequently left off that list, and Mettle is a free business account in its own right. Otherwise it’s £19 a month ex-VAT for the sole trader plan.
- QuickBooks has a Sole Trader Plus tier at £10 a month ex-VAT, below the more commonly quoted Simple Start at £16.
- Xero starts at £16 a month ex-VAT for Ignite.
These are solid if you want a more feature-rich experience, but none is necessary purely to meet your MTD obligations.
Worth checking before you pay anything: if you bank with NatWest Group or Mettle, FreeAgent free is a fully-featured route to compliance at no cost, and it’s often overlooked because people assume free means limited.
Can You Use Spreadsheets? Bridging Software Explained
If you’d rather keep your finances in Excel or Google Sheets, you’re not locked out. Bridging software sits between your spreadsheet and HMRC’s systems, reading your data and submitting it in the required MTD format.
This works for sole traders with straightforward finances who don’t want to change their workflow. It does add a step, and your spreadsheet needs structuring so the bridging tool can read it correctly.
Check HMRC’s recognised software list for MTD for Income Tax specifically before choosing a bridging tool. Several well-known bridging products were built for MTD for VAT, and VAT approval does not carry across.
How to Check Whether You’re in Scope
- Add up your gross self-employment income for the most recent tax year, before expenses
- Add any gross property income, before expenses
- If the combined total exceeds £50,000, you are already in scope and should be filing quarterly now
- Between £30,000 and £50,000 — you’re in from April 2027
- Between £20,000 and £30,000 — the planned April 2028 phase is the one to watch
- Below £20,000 — not currently mandated, but keep an eye on developments
The definitive answer is always on GOV.UK. If your circumstances are at all complex, speak to an accountant.
FAQ
I’m a sole trader earning under £50,000 — do I need to do anything?
Not yet, legally. Below £50,000 of qualifying income you aren’t mandated until your phase arrives — April 2027 at £30,000, planned April 2028 at £20,000. It’s still worth adopting compliant software voluntarily so you aren’t scrambling later.
Do I still need to file an End of Period Statement?
No. EOPS was removed from MTD for Income Tax following the 2023 Autumn Statement, with its functions merged into the Final Declaration. Many guides and some software training materials still reference it because the change wasn’t widely publicised.
Can I still file through HMRC’s Self Assessment portal?
Not if you’re in scope for MTD. The Final Declaration must go through MTD-compatible software. The deadline is unchanged at 31 January following the tax year end, but the route isn’t.
Will my existing accounting software work?
Not necessarily. MTD for VAT compatibility does not mean a product is ready for MTD for Income Tax. Verify your software appears on HMRC’s recognised list for Income Tax specifically.
Does MTD mean filing four tax returns a year?
No. Quarterly updates are summaries of income and expenses — not tax returns, and they don’t trigger a tax payment. Think of them as progress reports. Your tax is calculated at the Final Declaration.
What happens if I don’t comply?
A points-based penalty regime applies, similar to MTD for VAT — late submissions accumulate points, with financial penalties once you reach a threshold. Check GOV.UK for the current position, and if you’re already in scope and haven’t started, address it now rather than waiting.
What’s the cheapest way to comply?
If you bank with NatWest, RBS, Ulster Bank or Mettle, FreeAgent free is the strongest option. Otherwise Zoho Books’ free plan, subject to its turnover threshold. Below that, QuickBooks Sole Trader Plus at £10 a month ex-VAT is the cheapest confirmed paid route.
Conclusion
If your gross self-employment and property income combined exceeds £50,000, you are already in scope — MTD for Income Tax became mandatory on 6 April 2026. Check whether you’ve met your quarterly update deadlines, because the first one fell in August.
Compliance needn’t be expensive. FreeAgent is free with a NatWest Group or Mettle account, and Zoho Books’ free plan is HMRC-recognised subject to a turnover threshold you should verify. If you’d rather stay in spreadsheets, bridging software is a legitimate middle path.
And ignore anything telling you to prepare an End of Period Statement. That requirement was scrapped before mandation began — quarterly updates plus a Final Declaration is the whole of it.
Use HMRC’s recognised software list on GOV.UK as your starting point. It’s the only authoritative source for what’s actually approved.
This article is general information about Making Tax Digital, not tax advice. Whether you are in scope, what counts as your qualifying income, and which software meets your obligations depend on your specific circumstances — check current GOV.UK guidance and consult a qualified accountant or tax adviser. Thresholds, deadlines and requirements have changed repeatedly during this rollout and may change again; confirm the current position before acting.