Making Tax Digital for tradespeople

Who has to use it, and when

Making Tax Digital for Income Tax changes how sole traders report to HMRC. Instead of one tax return a year, you keep your records in compatible software and send a summary every three months, then finish the year with a tax return from the same software.

It depends on your qualifying income: your self-employed and property income added together, before expenses. That's your takings, not your profit. A plumber taking £45,000 with £15,000 of costs has qualifying income of £45,000.

HMRC checks each tax return and writes to you when you need to start. At £20,000 or less you're automatically exempt. Partnerships don't have to use it yet, and some people can apply for an exemption, for example if they're digitally excluded.

What you have to do

• Keep digital records: every bit of income and every expense of the business, created and stored in software that works with Making Tax Digital. Keep the invoices, receipts and bank statements behind them as you do now.
• Send a quarterly update every three months: your software adds up the records and sends the totals. It's a summary, not a tax return, and needs no accounting adjustments.
• Submit the tax return from your software by 31 January after the tax year, and pay as before: by 31 January, with payments on account on 31 January and 31 July.
• Two trades, two sets: if you run two sole trader businesses, each gets its own records and its own quarterly updates.

The quarterly deadlines

Each update covers the tax year so far. If your accounts run to 31 March, you can choose calendar periods (1 April to 30 June and so on) with the same deadlines, but only before your first update.

Penalties

Late submissions work on points. Each missed quarterly update or tax return deadline is a point, and at 4 points you get a £200 penalty, then £200 for every deadline missed after that. Below 4, each point drops off after 24 months.

• 2026 to 2027 is a soft year for updates: there are no points for a late quarterly update for that tax year. You still need to send all four before you can submit the tax return.
• Paying late: nothing up to 15 days late, then a percentage of the tax owed (3% at day 15 and 3% at day 30 for 2026 to 2027; 4% each for 2027 to 2028), then 10% a year on what's still owed, as well as late payment interest. In your first year of the new penalties you get 30 days instead of 15. Payments on account don't get these penalties.
• Can't pay? Contact HMRC before the deadline. Agreeing a payment plan pauses the penalties while you keep to it.

Choosing software

HMRC lists compatible software and says free products are available for people with simple tax affairs, sometimes with limits such as the number of transactions. There are two kinds:

• Record-keeping software that links to your business bank account, scans receipts or takes entries by hand, then sends the updates.
• Bridging software that connects to records you already keep, for example in a spreadsheet, and sends the updates from them.

If you use more than one product, the records have to be linked digitally (linked cells, CSV import and export, or an API), not copied out by hand. HMRC says software that only takes bookings or records sales, like a till, doesn't need to be linked.

Getting ready this year

• Work out your qualifying income: your takings on the last tax return, plus any rent.
• Keep a separate bank account for the business. Bank-feed software then picks up most of it for you.
• Get every customer paid by invoice, card or bank transfer rather than cash in hand, so each payment leaves a record.
• Put the tax aside as it comes in. The self-employed tax calculator shows how much.
• Ask your accountant whether they'll do the quarterly updates for you, and what they charge.

Where Knockround fits

Knockround isn't Making Tax Digital software and doesn't send anything to HMRC. It's where the work happens: jobs, quotes, rounds and invoices on your phone, with a Pay button on every invoice for Apple Pay, Google Pay or card, and the Money screen showing each month in and out. That gives you a clean record of every job you were paid for, ready to go into your Making Tax Digital software or to your accountant.

Try it on the plumbing demo, with made-up customers. It's free for 7 days with no card needed, then £19.99 a month.

Written by the Knockround team from GOV.UK's guidance, read on 29 October 2026: when you need to use it, quarterly updates, digital records, penalties and exemptions. This is a guide, not tax advice.