MTD Software for Sole Traders in 2026: What You Need to Know About Making Tax Digital for ITSA

MTD Software for Sole Traders in 2026: Everything You Need to Know

If you are a sole trader in the UK, 2026 is the year Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) becomes real. After years of delays and pilot testing, HMRC’s mandatory digital record keeping and quarterly reporting requirements are now in effect for self-employed individuals and landlords with gross income above GBP 50,000.

This is one of the biggest changes to UK self-employment tax in decades. This guide explains what MTD for ITSA means for sole traders, what you need to do, and how to choose the right software to stay compliant.

What Is MTD for ITSA?

Making Tax Digital for Income Tax Self Assessment is HMRC’s programme to move tax reporting from an annual process to a quarterly digital one. Instead of filing a single Self Assessment tax return once a year, sole traders and landlords must now:

Keep digital records of all business income and expenses using MTD-compatible software
Submit quarterly updates to HMRC summarising income and expenses for each quarter
File an End-of-Period Statement (EOPS) after the end of the tax year, confirming the figures for each income source
Make a final declaration — replacing the traditional Self Assessment tax return — confirming your total income and claiming any reliefs or allowances

The quarterly updates are due by the following deadlines:

Quarter	Period	Submission Deadline
Q1	6 April to 5 July	7 August
Q2	6 July to 5 October	7 November
Q3	6 October to 5 January	7 February
Q4	6 January to 5 April	7 May

The final declaration must be submitted by 31 January following the end of the tax year — the same deadline as the current Self Assessment return.

Who Must Comply in 2026?

MTD for ITSA is being rolled out in phases based on income:

From April 2026: Sole traders and landlords with gross annual income above GBP 50,000 must comply
From April 2027: The threshold drops to GBP 30,000
Below GBP 30,000: HMRC has indicated further expansion may follow, but no firm date has been set for lower income thresholds

Gross income means your total business turnover before deducting expenses — not your profit. This is an important distinction. A sole trader with GBP 55,000 turnover but only GBP 25,000 profit is above the threshold and must comply.

If you have income from both self-employment and property letting, these are considered separately. You would need to submit quarterly updates for each income source.

What This Means in Practice for Sole Traders

No More Shoebox of Receipts

The days of stuffing receipts in a drawer and handing them to your accountant once a year are over. Under MTD for ITSA, you must maintain digital records throughout the year. This means recording transactions as they happen (or close to it) using compatible software.

Quarterly Updates Are Summaries, Not Tax Returns

It is worth understanding that quarterly updates are not the same as filing four tax returns per year. Each quarterly update is a summary of your income and expenses for that period. It gives HMRC a running picture of your tax position but does not finalise anything. You can make corrections in subsequent quarters, and the final declaration is where everything is confirmed.

That said, the more accurate your quarterly updates are, the less work there is at year end.

You Still Need a Final Declaration

The final declaration replaces your Self Assessment tax return. This is where you confirm your total income, claim allowances (such as the trading allowance or capital allowances), and declare any other income. It is due by 31 January, just like the current Self Assessment deadline.

Your Accountant Can Still Help

MTD for ITSA does not mean you have to do everything yourself. Your accountant can access your MTD software, review your records, and even submit quarterly updates on your behalf. Many accountants are actively encouraging their clients to adopt MTD software to make collaboration easier and reduce errors.

What to Look for in MTD Software as a Sole Trader

Not all MTD software is created equal, and what works for a limited company with 20 employees is not necessarily right for a sole trader. Here is what matters most:

Simplicity

As a sole trader, you are running your business, doing the work, finding clients, and managing everything yourself. Your accounting software should not require hours of training or an accounting qualification to use. Look for clean interfaces, clear terminology, and straightforward workflows.

Mobile Access

Most sole traders are not desk-based. Whether you are a plumber, a freelance designer, a market trader, or a private tutor, you need to be able to record income and expenses wherever you are. A mobile app that lets you create invoices and photograph receipts on the go is far more practical than desktop-only software.

Invoicing Built In

If you invoice clients (and most sole traders do), it makes sense for your MTD software to include invoicing. This means every invoice you send is automatically recorded as income — no double entry, no manual transfer between systems, no risk of missing something.

Expense Tracking

Similarly, built-in expense tracking means your costs are recorded alongside your income in one place. Bonus points for receipt scanning with OCR (optical character recognition), which extracts the details from a photo of a receipt so you do not have to type them in manually.

Affordable Pricing

Sole traders typically operate on tighter margins than larger businesses. Paying GBP 35 or more per month for accounting software may not make sense when your needs are straightforward. Look for tools that charge a fair price for what they offer, without pushing you into expensive plans for features you do not need.

HMRC Recognition

This is non-negotiable. Your software must appear on HMRC’s list of MTD-compatible products. If it is not on the list, your submissions may not be accepted, and you could face penalties.

Why Invoice Guru Works Well for Sole Traders

Invoice Guru was designed from the ground up for sole traders and small business owners who need practical, affordable tools — not a complex accounting suite.

Here is why it suits the typical sole trader:

Mobile-first design: Invoice Guru is built as a mobile app first. You can create invoices, log expenses, capture receipts, and review your financial summaries all from your phone. It works around your schedule, not the other way around.

Invoicing and expenses in one place: Every invoice you send and every expense you record feeds into your financial overview. There is no need to reconcile separate systems or manually transfer data.

Receipt OCR: Photograph a receipt with your phone camera, and Invoice Guru extracts the key details automatically. This is particularly useful for sole traders who accumulate a lot of small expenses — fuel, materials, tools — throughout the day.

Clear financial summaries: See your income, expenses, and estimated position at a glance. When it comes time to submit a quarterly update, the data is already organised.

Affordable pricing: Invoice Guru offers a free plan for core invoicing and expense tracking, and the full MTD plan is GBP 12.99/month. There are no hidden fees, no introductory pricing that doubles after three months, and no pressure to upgrade to plans with features you will never use.

Designed for non-accountants: The interface uses plain language, not accounting jargon. You do not need to know the difference between accrual and cash basis accounting to use it effectively (though it supports both).

Learn more about Invoice Guru’s MTD compliance features or explore the full feature set.

Common Questions from Sole Traders About MTD

Do I Have to Submit Quarterly Updates If I Use an Accountant?

Yes. MTD for ITSA applies to you regardless of whether you use an accountant. However, your accountant can submit the quarterly updates on your behalf if your software supports agent access. The requirement is that the updates are submitted using MTD-compatible software — it does not matter whether you or your accountant presses the button.

Can I Use Spreadsheets?

Not on their own. HMRC requires that records are kept and submitted using MTD-compatible software. Spreadsheets alone do not meet this requirement. Some providers offer bridging software that can link a spreadsheet to HMRC’s API, but this adds complexity and you are still responsible for maintaining accurate digital records in the spreadsheet.

What Happens If I Miss a Quarterly Deadline?

HMRC operates a points-based penalty system for late submissions. You receive a point for each late quarterly update. Once you accumulate a certain number of points (typically four), you receive a GBP 200 penalty. Points expire after a period of consistent on-time submissions, so occasional lateness is treated differently from persistent non-compliance.

What If My Income Fluctuates?

Many sole traders have variable income. You only need to comply with MTD for ITSA if your gross income exceeded the threshold in the previous tax year or you expect it to exceed the threshold in the current year. If your income drops below the threshold, you may be able to exit MTD for ITSA, though you should check the specific rules or consult your accountant.

Do I Need to Record Every Small Expense?

You should record all allowable business expenses to reduce your tax liability, but there is no minimum transaction size that HMRC specifies. In practice, the easier your software makes it to log small expenses (a quick receipt photo, for example), the more likely you are to capture everything and claim the full deductions you are entitled to.

What About VAT?

MTD for ITSA and MTD for VAT are separate programmes. If you are VAT-registered (which is required once your taxable turnover exceeds GBP 90,000), you may also need to comply with MTD for VAT. Many MTD software tools, including Invoice Guru, support both. If you are not VAT-registered, MTD for VAT does not apply to you.

How to Get Started

If you are a sole trader who needs to comply with MTD for ITSA in 2026, here is a practical step-by-step approach:

Check your income — Review your gross income for the 2024/25 tax year. If it exceeded GBP 50,000, you need to comply from April 2026. If it is between GBP 30,000 and GBP 50,000, you have until April 2027.
Choose your software — Select an MTD-compatible tool that suits your working style and budget. If you want something simple and mobile-first, try Invoice Guru’s free plan to see if it fits.
Start recording digitally now — Even before your mandatory start date, begin keeping digital records. This builds the habit and ensures your records are complete from day one.
Sign up for MTD with HMRC — You need to register for MTD for ITSA through your Government Gateway account. HMRC will then know to expect quarterly updates from you.
Authorise your software — Connect your chosen software to your HMRC account so it can submit updates on your behalf.
Submit your first quarterly update — Your software will guide you through the process. If you have been recording income and expenses digitally, this should be a relatively quick and painless process.
Keep going — The key to stress-free MTD compliance is consistent record keeping. Log income and expenses as they happen, and quarterly submissions become a quick review rather than a scramble.

The Bigger Picture

MTD for ITSA is a significant change, but it is not as daunting as it might seem. At its core, it asks sole traders to do what good business practice already recommends: keep track of your money throughout the year, not just at tax time.

The right software makes this easy rather than burdensome. For sole traders who want a simple, affordable, mobile-first tool that handles invoicing, expenses, and MTD compliance in one place, Invoice Guru is worth a look. But whatever software you choose, the most important thing is to start now, build the habit of regular record keeping, and approach your first quarterly submission with confidence rather than panic.

Your future self — the one who is not scrambling to reconstruct a year’s worth of transactions the night before the deadline — will thank you.