Making Tax Digital for Self Employed

What is Making Tax Digital for self-employed people?

Making Tax Digital for Income Tax (MTD ITSA) is HMRC's biggest change to sole trader tax reporting in decades. From April 2026, you will no longer file a single annual Self Assessment return. Instead, you will:

• Keep digital records of all business income and expenses using HMRC-compatible software
• Submit quarterly updates — a summary of income and expenses sent to HMRC four times a year
• Make a final declaration — the equivalent of your current SA100, confirming all income by 31 January

Self-employed sole traders above the qualifying income threshold must use HMRC-recognised software. Spreadsheets and paper records will no longer satisfy HMRC's digital record-keeping requirements for those within scope.

Who counts as self-employed for MTD purposes?

MTD for Income Tax applies to you if you:

• Operate as a sole trader in any trade or profession
• Are registered for Self Assessment
• Have gross qualifying income exceeding the relevant threshold

MTD covers freelancers, contractors, tradespeople, consultants, creative professionals, gig workers, and any individual who trades in their own name. It does not currently apply to partnerships or limited companies.

Working out your qualifying income

Qualifying income is your gross turnover from self-employment — total sales before deducting any expenses. If you also receive rental property income, add that to your self-employment total to get your combined qualifying income.

What does not count towards the threshold:

• Wages and salary from employment (PAYE)
• Dividends from limited company shares
• Savings interest
• Pension income
• Capital gains

The quarterly update cycle for sole traders

Each tax year is split into four quarters. After each period you submit a summary of business income and expenses to HMRC. Updates are cumulative from April 2026 onwards — each submission includes running totals from the start of the year.

Allowable expenses for sole traders

The same business expenses allowable under Self Assessment remain deductible under MTD — they just need to be kept as digital records and submitted via software. Regulas includes all standard sole trader categories:

• Office costs (stationery, phone, broadband)
• Travel and vehicle costs (business mileage, public transport, parking)
• Staff costs and subcontractor payments
• Stock, materials, and cost of goods sold
• Financial costs (bank charges, insurance, loan interest)
• Advertising and marketing
• Professional fees (accountant, solicitor)
• Business premises costs (rent, rates, utilities)
• Home office use (flat-rate or proportion of actual household costs)

Cash basis and simplified expenses

Most sole traders can use the cash basis — recording income when received and expenses when paid, rather than traditional accruals accounting. This is simpler for most freelancers and tradespeople.

HMRC also allows simplified flat-rate expenses for vehicles (pence-per-mile rates) and home office use (monthly flat rates based on hours worked at home). Regulas supports both approaches — choose what works for your business.

Construction Industry Scheme (CIS) sole traders

If you work as a subcontractor under the Construction Industry Scheme, MTD for Income Tax applies to your gross receipts — before CIS deductions made by contractors. Your qualifying income is your total gross contract value, not the net amount received after the 20% CIS deduction.

CIS-specific features — including automatic CIS deduction tracking and year-end repayment calculations — are on the Regulas development roadmap.

Employed and self-employed: how MTD fits

Many people have both employment (PAYE) and self-employment income. Under MTD, your PAYE income does not count towards the qualifying threshold and is not reported through quarterly updates. Your employer continues to handle employment tax via PAYE as normal.

Your final declaration will bring together employment income, MTD-reported income, and any other sources (dividends, savings, pension) to calculate your total tax position for the year.

Why Regulas for the self-employed

Regulas is built from the ground up for sole traders and landlords — not adapted from general business accounting software. Key features for self-employed users:

• AI-powered categorisation — learns your spending patterns and auto-categorises transactions
• Live tax estimates — see your estimated tax liability update in real time as you add transactions
• One-click quarterly submissions — submit directly to HMRC from within Regulas
• Mileage tracker & simplified expenses — log business journeys and apply flat-rate home office costs
• Year-end checklist — guided walkthrough to final declaration, ensuring you don't miss any deductions

How to register and get started

1. Check your qualifying income — total your gross self-employment receipts for 2024–25 and add any rental income
2. Register with HMRC — follow our MTD registration step-by-step guide
3. Sign up to Regulas — create your account on the free tier, no card required
4. Connect to HMRC — authorise Regulas via HMRC's secure OAuth link (takes about 2 minutes)
5. Set up your business — add your trade, choose cash or accruals basis, enter any opening figures
6. Submit your first update — Regulas displays your next deadline and guides you through submission

Compare Regulas against alternatives on our MTD software comparison page, or read our free MTD software guide to understand what each provider offers at no cost.