Making Tax Digital
The sole trader survival guide to MTD wave 1
ONLY£15A MONTHA practical guide to the first MTD year: eligibility, digital records, quarterly deadlines, record retention and choosing the right level of help.
The first mandatory year of Making Tax Digital for Income Tax runs from 6 April 2026 to 5 April 2027. For a sole trader joining that first group, the aim is to build a routine you can repeat without disrupting your business.
You need suitable digital records, software that supports your circumstances and a clear understanding of who will review and submit information. Start there, and the quarterly deadlines become much easier to plan around.
This guide follows the first MTD year from checking eligibility to completing the annual tax return.
First, check that you belong in the first phase
The main entry test is qualifying self-employment and property income of more than £50,000 in 2024/25, subject to exemptions. Costs are generally not deducted for this test. If you have several sole trades or rental income alongside a trade, combine your relevant income.
The later phases use more than £30,000 in 2025/26 for an April 2027 start and more than £20,000 in 2026/27 for an April 2028 start. HMRC’s eligibility guidance explains the dates and conditions.
Do not assume that being VAT registered settles your Income Tax obligations. The two systems have different purposes and entry rules. Equally, having an accountant does not make you exempt: it changes who can help with the work.
Understand the duties across the year
The 2026 digital obligations regulations provide the legal framework. For an ordinary sole trader in scope, the practical responsibilities are:
- Keep the required business records digitally.
- Use compatible software, or a suitable connected combination of products.
- Send quarterly summaries for the businesses covered by your obligations.
- Complete and submit the annual tax return using suitable software.
The annual return is essential. Four updates do not, by themselves, finish your tax obligations for the year.
Set up a system you can actually maintain
Choose where transactions will arrive
You might connect a bank feed, import a spreadsheet or enter transactions directly. HMRC accepts different methods of creating digital records. Choose one main workflow and document any additional sources, such as cash income or a second account.
A useful record includes the required date, amount and category. Add a clear description and evidence reference so that you can understand it later. These extra details are often what make a query easy to answer.
Keep distinct businesses identifiable. If you are both a decorator and a driving instructor operating separate trades, a single undifferentiated list will make reporting harder.
Check the whole software journey
Ask whether your chosen product supports your income sources, accounting period, quarterly updates and annual tax return. If another product or your accountant will handle the year-end return, agree that arrangement now.
An HMRC-recognised product should still be checked against your particular needs. Recognition is not a recommendation from HMRC. Its software selection guidance explains why coverage matters.
Complete MTD registration and the appropriate software authorisation. Signing up to a software subscription and signing up with HMRC are separate steps.
Your timeline for 2026/27
The following dates assume standard tax-year update periods:
| Date | What to plan for |
|---|---|
| 6 April 2026 | Start the first MTD tax year and record the relevant transactions |
| 5 July 2026 | First update period ends |
| 7 August 2026 | First update due |
| 5 October 2026 | Second cumulative update period ends |
| 7 November 2026 | Second update due |
| 5 January 2027 | Third cumulative update period ends |
| 31 January 2027 | Normal online filing deadline for the earlier 2025/26 return |
| 7 February 2027 | Third update due |
| 5 April 2027 | MTD tax year and fourth update period end |
| 7 May 2027 | Fourth update due |
| 31 January 2028 | Annual 2026/27 tax return and balancing payment deadline |
Calendar update periods use 1 April to month-end instead; the quarterly deadlines stay the same. The second, third and fourth submissions contain the year’s cumulative figures. Check the official quarterly timetable.
Your payments on account, if applicable, continue on the normal January and July schedule. Put payment reminders in the calendar separately from filing reminders.
A worked first-quarter routine
Daniel runs a decorating business. By early July, his records contain £19,500 in customer receipts and £6,200 of business spending awaiting final review.
He checks the following before submitting:
- The bank feed covers the entire period.
- Two cash payments from customers have been added.
- A transfer from his personal savings is excluded from sales.
- A materials purchase paid on another card is included once.
- A mixed personal and business purchase is clearly identified.
His software prepares the relevant totals from the reviewed records. Daniel checks the business and reporting dates, submits and retains the acknowledgement.
He has not completed all his annual tax work. He has completed a useful review of the records and sent the required summary. That distinction keeps the task proportionate.
Make a habit of retaining evidence
Business records generally need to be kept for at least five years after the 31 January submission deadline for the relevant tax year. For a normally filed 2026/27 return due on 31 January 2028, that means keeping them until at least the end of January 2033. Longer retention can be required in some circumstances. Read HMRC’s record-retention guidance.
The underlying obligation to keep adequate records is part of the Taxes Management Act 1970 framework. MTD adds digital requirements; it does not make supporting evidence unnecessary.
Keep receipts, invoices and statements in an organised place, with a way to connect them to the bookkeeping. Check how you will export and retain records if you change software. Access to an active subscription should not be your only retention plan.
Decide how much help you want
Self-service can work well if you can maintain your records and are comfortable checking the figures. Professional help may be worthwhile when you have limited time, several income sources or questions requiring tax judgement.
| Option | What you take on | Starting monthly cost |
|---|---|---|
| Avona.app | Maintain records, review categories and manage submissions | £15 |
| Avona Concierge | Supply information and work with the chartered-accountant team under the agreed service scope | £60 retainer + VAT, plus £15 software; £75 plus VAT on the retainer |
Avona Concierge has different service levels. Agree which tasks are included: record preparation, reconciliation, quarterly filing and annual return work are not necessarily all part of the entry-level retainer.
If you fall behind, deal with the missing work
HMRC will not apply quarterly late-submission penalties for the 2026/27 tax year, but digital records and updates are still required. The annual return and tax payments have their own rules. See HMRC’s first-year penalty guidance.
If you miss a step, establish what is outstanding, gather the records and agree a catch-up plan. Do not let uncertainty about one transaction prevent you from organising everything else.
Start with one complete workflow
Choose your record source, confirm software coverage, agree responsibilities and schedule regular reviews. You can improve the routine as you use it.
Explore Avona.app for £15/month, or discuss the level of support available through Avona Concierge. The right setup is the one that helps you keep reliable records throughout the year and understand what still needs your attention.