Sole Traders Face New Tax Rules from April

Sole traders earning more than £50,000 from self-employment are being urged to act now with two months left to prepare for Making Tax Digital (MTD) for Income Tax.

From 6 April 2026, those eligible will need to use recognised software to keep digital records and send HM Revenue and Customs (HMRC) light-touch quarterly updates of their income and expenses. These are not extra tax returns.

HMRC is providing a range of free support to help people prepare, including online guidance, webinars and videos. Those who genuinely cannot use digital tools can apply for an exemption.

Free software options are available and once income and expenses are recorded, the software generates a simple summary to send to HMRC.

At the end of the year, those within MTD for Income Tax will still need to file a tax return by the following 31 January – but the software will already hold the information from the quarterly updates, meaning no last-minute hunt for records or receipts.

New Tax Rules for Sole Traders

Craig Ogilvie, HMRC’s Director of Making Tax Digital, said: “With two months to go until MTD for Income Tax launches, now is the time to act. A range of software is available and the system is straightforward and helps reduce errors. Thousands of volunteers have already used it successfully.

“This will make is easier for sole traders to stay on top of their tax affairs and help ensure everyone pays the right amount of tax.

“Spreading your tax admin throughout the year means avoiding that last minute scramble to complete a tax return every January. Go to GOV.UK and start preparing today.”

Making Tax Digital

Thousands of sole traders have already signed up for MTD for Income Tax, with more than 12,000 quarterly updates successfully submitted through a voluntary testing programme.

Those joining MTD in April 2026 will still file their tax return for the 2025 to 2026 tax year in the usual way by 31 January 2027, as this covers the period before MTD begins. The first MTD tax return, covering the 2026 to 2027 tax year, will be due by 31 January 2028.

To support the transition, the government has announced that customers joining MTD for Income Tax in April 2026 will not receive penalty points for late quarterly updates, for the first 12 months.

Under the new system, penalty points will be given for each late submission, with a £200 penalty only applied once four points are reached. This means occasional slip-ups won’t result in immediate fines.

HRMC is urging those in scope of MTD for Income Tax to act now: read the guidance, choose software and sign up on GOV.UK. Those who use a tax agent should speak to them about preparing.

>> Read more about the switch to digital here