Changes to digital tax reporting: Sole traders beware!

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The Government’s Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) programme is gradually being rolled out and for sole traders, now is the time to prepare.

Next year, hundreds of thousands of self-employed individuals will be brought into the scope of the new digital reporting system.

If your income exceeds £20,000 a year, it is likely you will be affected.

From April 2026, those earning over £50,000 annually will be required to comply.
In April 2027, the threshold drops to £30,000.
By April 2028, all sole traders earning more than £20,000 per year will fall within the scope of MTD for ITSA.

This phased approach gives individuals time to adjust – but we believe it would be unwise to delay your preparations.

Quarterly submissions will replace annual returns

The key change is that income tax reporting will no longer take place once a year.

Instead, you will need to submit financial updates every quarter.

This means maintaining accurate digital records throughout the year and staying organised well in advance of each deadline.

While the aim is to increase efficiency, there are concerns that the additional administrative burden will place further pressure on small businesses and sole traders who may not have dedicated support in place.

Alongside these changes, HMRC is also introducing a new penalty regime.

Delays in submission will now attract escalating fines – three per cent of the outstanding tax if a return is 15 days late, six per cent if it exceeds 30 days, and 10 per cent after 31 days.

For smaller enterprises, these charges could represent a significant financial setback – particularly given the increased number of deadlines.

How to prepare

The most effective way to ensure compliance is to begin adopting digital processes now.

Using bookkeeping software, automating data entry where possible, and working with a professional tax adviser can help reduce the burden and improve accuracy.

Seeking support early will also give you the confidence to manage the changes as they take effect and avoid the risk of falling foul of the new rules.

Our team is on hand to help you assess your readiness for MTD and implement the systems you need to remain compliant.

Please get in touch for tailored advice, guidance and support.