Making Tax Digital for sole traders: what it actually means

Last updated: August 2026

What is actually changing

Making Tax Digital for Income Tax does not change your tax bill, your allowable expenses or your trading profit. It changes two administrative things: how you keep your records, which has to be digital, and how often you report, which becomes quarterly updates during the year rather than one Self Assessment return afterwards.

It is being phased in by qualifying income, with the highest earners brought in first and lower thresholds following in later years. Whether you are in scope now, soon or not for some time depends on your gross income from self-employment and property, which is turnover, not profit. That distinction catches people out: a sole trader with high materials costs can be well over a threshold on turnover while taking home comparatively little.

What “digital records” means in practice

A photograph of a receipt in your phone’s camera roll is not a digital record. Neither is a carrier bag of paper you hand your accountant in April. A digital record means each transaction (the date, the amount, the category) captured in software, kept as you go rather than reconstructed later.

For a trades business the awkward half is almost always expenses rather than income. Invoices tend to be recorded already because you need them to get paid. Receipts are the problem: fuel, parking, a fitting bought mid-job, a tool replaced on the way to a call. They accumulate in vans, wallets and glove boxes, and by the time anyone sorts them, half are illegible and some are missing entirely.

The habit that fixes it is capturing the expense at the moment it happens, on site, rather than intending to deal with it later. In Dispatch a technician can photograph a receipt on site and record what it cost, so the record is created at the point of spending.

The digital link, and why it matters

Under Making Tax Digital, data is supposed to move between systems by a digital link rather than being retyped. Manually copying a total from one screen into another box breaks that chain, which is precisely what the rules are designed to prevent.

In practice this means the software holding your records needs to hand them to the software that files your return, without a human transcription step in the middle.

What a sole trader should do about it

1. Find out whether and when you are in scope. Check your qualifying income against the current thresholds on GOV.UK. Remember it is gross income, not profit.
2. Decide what will file your returns. This is the piece that talks to HMRC, and it is a decision worth making with your accountant rather than alone.
3. Fix expense capture first. It is the weakest link in nearly every trades business and the one that takes longest to become a habit.
4. Start before you have to. Running digital records for a quarter or two while the old system is still your safety net is far less stressful than switching on a deadline.

The quiet upside

The compliance framing makes this sound purely like cost, but keeping records as you go has a real benefit that has nothing to do with tax: you find out during the year whether you are actually making money.

A sole trader who reconciles once a year discovers in the following January that a job they were proud of in June barely broke even, by which point they have quoted a dozen more like it. Quarterly records mean quarterly answers, and that changes what you charge.

The same principle applies to the money owed to you. If you want the other half of that picture, see chasing an unpaid invoice and quoting with a deposit.