Making Tax Digital for sole traders

When you start

HMRC looks at your qualifying income: your turnover from self-employment, plus any rent from property, before expenses. It's your total sales, not your profit. So a plumber with £34,000 of sales and £12,000 of costs has qualifying income of £34,000 and starts in April 2027.

If you also have a job, your wages don't count towards the threshold. Our guide Does Making Tax Digital apply to me? has the full rules and the exemptions.

One update for each trade

HMRC gives each of your self-employments its own business ID. If you're a joiner who also does some photography as a separate business, that's two trades, two business IDs and two quarterly updates each quarter. If you're also a landlord, your property is a further income source with its own update.

Your software gets these IDs from HMRC after you sign in, so you don't need to find or type them.

What goes in a quarterly update

Each update is a summary of your income and expenses so far this tax year, sorted into HMRC's categories, such as:

• cost of goods bought for resale or goods used
• car, van and travel expenses
• wages, salaries and other staff costs
• rent, rates, power and insurance costs
• repairs and maintenance of property and equipment
• phone, fax, stationery and other office costs
• accountancy, legal and other professional fees
• other business expenses

If your turnover is under £90,000, you can send your expenses as one total instead of by category. It's simpler to send, but keeping categories in your records still helps you, and your accountant, see where the money goes.

Updates are cumulative. Each one covers 6 April to the end of the quarter, so a mistake in one update is put right in the next. See quarterly updates and deadlines for the dates.

Keeping digital records

For each business transaction, your records need the date, the amount and the category. The easiest way to keep them is to let your software read your bank account, so most of the work is deciding whether each payment is business or personal.

• Use a separate account if you can. It isn't required, but it makes sorting much quicker.
• Keep receipts. A photo is fine. You need to keep records for at least 5 years after the 31 January deadline for that tax year.
• Split mixed payments. A phone bill that's partly for work can be split between business and personal.

CIS, if you work in construction

If a contractor takes Construction Industry Scheme (CIS) deductions from what they pay you, record the full amount you invoiced as income, not just what reached your bank. The tax the contractor took off counts towards your tax bill. HMRC uses the deductions your contractors report, and you can give your own figure at the end of the year if they don't match. Good software shows you that credit all year, so your estimate of what to set aside stays right.

Expenses and allowances

• Mileage. If you use simplified expenses for a car or van, you can claim 55p a mile for the first 10,000 business miles in the tax year and 25p a mile after that, instead of the actual running costs. The 55p rate applies from 6 April 2026; it was 45p before.
• Trading allowance. If your business income is small, you can claim a £1,000 allowance instead of your actual expenses.
• Equipment. Most sole traders now use the cash basis, HMRC's default since April 2024, where tools and equipment are usually claimed as ordinary expenses. Cars are different: they're claimed through capital allowances when you do your tax return.

At the end of the year

After your fourth quarterly update, you finish the year in your software. You add the adjustments bank data can't show, such as private use of your van, equipment you bought or stock you're holding, plus any other income like a job, savings interest or dividends. HMRC works out your tax, you check it and submit your return by 31 January. Payments stay the same: any balance and your first payment on account on 31 January, and the second payment on account on 31 July.