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Posted: Wed 25th Feb 2026
5 min read
From 6 April 2026, the first wave of 860,000 sole traders and landlords must use digital software to manage their tax affairs.
This marks the beginning of the most significant shift in self-employment taxation in a generation.
The new Making Tax Digital for Income Tax (MTD ITSA) system will be rolled out over three years, starting with those earning over £50,000 a year.
The threshold will progressively lower to £30,000 from April 2027 and to £20,000 from April 2028, eventually bringing up to three million more self-employed people into the digital regime.
The phased approach mirrors HMRC's existing Making Tax Digital for VAT programme.
Under that, all VAT-registered businesses in the UK with a taxable turnover above £90,000 must keep digital records and use software to submit their tax returns.
Here are the important dates for MTD ITSA.
April 2026: Sole traders and landlords with a gross income of over £50,000 in the 2024/2025 tax year must comply.
April 2027: The threshold drops to £30,000 for those reaching that level in 2025/2026.
April 2028: The net widens further to include those earning over £20,000 in 2026/2027.
VIDEO: Making Tax Digital (MTD): What small businesses need to know for 2026
What exactly is changing and how can small businesses prepare now to make the transition smooth and stress-free?
Yet as the first April 2026 deadline approaches, new research from Monzo Business reveals a worrying gap in preparedness.
While 70% of the sole traders surveyed said they're aware of the incoming rules, almost a third (28%) admit they're not confident their business will be ready in time.
Sole traders already spend an average of 27 hours every year – more than three full working days – doing their taxes, according to Monzo Business's survey of its 800,000 business customers.
Using digital tools could give them back valuable time, the bank argues.
According to joint research from Enterprise Nation, The Entrepreneurs' Network and Intuit, smaller firms stand to gain the most from the changes.
Under the new system, those affected will need to use compatible software to:
create and store digital records of their income and expenses
send quarterly updates to HMRC
The traditional 31 January deadline for payment remains unchanged, but the journey to get there will look markedly different.
The income thresholds apply to total annual qualifying income from self-employment and property combined.
That means landlords with rental income and a side business must calculate their combined earnings carefully to determine when they'll need to comply.
Perhaps most worrying is that 69% of the sole traders Monzo Business surveyed don't currently pay for any digital tools to help with their taxes.
This suggests a substantial portion of the self-employed population will need to adopt new technology, either investing in paid solutions or seeking out free alternatives.
Recognising this challenge, some providers are stepping in with no-cost options.
Monzo Business has launched a free built-in tax tool powered by Sage's accounting technology, designed specifically to help sole traders navigate the transition without additional financial burden.
Visit the government's website for a regularly updated list of compatible software.
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