How to Get Ready for Making Tax Digital for Income Tax if You’re Self-Employed
Steven Ambrose6 min read
Making Tax Digital (MTD) for Income Tax is changing the way self-employed people report their income and expenses to HMRC. If you’re a self-employed builder, plumber, electrician, carpenter or other tradesperson, you may already need to follow the new rules, or you could be required to join from April 2027 or April 2028.
The good news is that preparing for Making Tax Digital doesn’t have to be complicated or expensive. With the right bookkeeping software and a straightforward system for keeping track of your business finances, you can stay organised and meet HMRC’s requirements.
In this guide, we’ll explain who needs to use Making Tax Digital, what records you must keep, how quarterly updates work, and how to get started using FreeAgent bookkeeping software. We’ll also explain what to do if you’ve fallen behind and how MTD Trade Books can help you get back on track.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax is an HMRC system that requires eligible self-employed people and landlords to keep digital records of their business income and expenses and send regular updates using compatible software.
Instead of relying entirely on one annual Self Assessment tax return, people within MTD must maintain digital records throughout the year and submit quarterly updates to HMRC.
These quarterly updates summarise your income and expenses. They are not four separate tax returns, and you do not have to pay Income Tax four times a year. Your normal tax payment deadlines generally remain the same.
At the end of the tax year, you must also complete the required year-end reporting to finalise your taxable income and tax position.
For builders and tradespeople, this means keeping track of payments received from customers, materials purchased, tools, fuel and other allowable business expenses using suitable digital bookkeeping software.
Who Needs to Use Making Tax Digital in 2026, 2027 and 2028?
Making Tax Digital for Income Tax is being introduced gradually, depending on how much qualifying income you receive from self-employment and property.
HMRC has set the following thresholds:
• From 6 April 2026: You must use MTD if your qualifying income was over £50,000 in the 2024/25 tax year.
• From 6 April 2027: The threshold reduces to over £30,000, based on qualifying income in the 2025/26 tax year.
• From 6 April 2028: The threshold reduces again to over**£20,000**, based on qualifying income in the 2026/27 tax year.
Importantly, these thresholds are based on your gross qualifying income before expenses, not your profit.
For example, if you’re a self-employed builder with £55,000 in annual turnover and £25,000 in allowable business expenses, your profit might only be £30,000. However, it is your qualifying income of £55,000 that determines whether you fall within the MTD threshold.
If you have both self-employment and property income, HMRC generally combines the relevant gross income from both sources when assessing whether you must join.
Certain exemptions and special circumstances may apply, so it’s important to check your individual position with HMRC.
How Can Self-Employed Builders and Tradespeople Prepare for MTD?
If you’re a self-employed builder, plumber, electrician, carpenter, decorator or other tradesperson, preparing for Making Tax Digital doesn’t need to be difficult. The key is getting your bookkeeping organised before your first quarterly update is due.
Here are five practical steps to help you prepare.
- Use a Separate Business Bank Account
Having a dedicated business bank account makes it much easier to keep track of money coming into and going out of your business. It also helps separate business transactions from personal spending.
Some business bank accounts, including eligible accounts with NatWest and Metro Bank, provide access to FreeAgent bookkeeping software at no additional subscription cost, subject to the bank’s terms.
- Keep Records of Your Income
Record payments received from customers, including payments for building work, plumbing, electrical work, decorating and other services.
If you’re a subcontractor working under the Construction Industry Scheme (CIS), you’ll also need to keep records of your CIS deductions.
- Keep Track of Business Expenses
Keep digital records of materials, tools, fuel, vehicle expenses, insurance, equipment and other allowable business costs.
Retaining receipts and invoices helps support your records and makes it easier to calculate your taxable profit.
- Start Using Compatible Bookkeeping Software
Making Tax Digital requires digital record-keeping and compatible software to submit information to HMRC.
FreeAgent can connect to supported business bank accounts, helping you organise transactions, categorise income and expenses, and prepare the information needed for your quarterly updates.
- Keep Your Bookkeeping Up to Date
Rather than leaving everything until the end of the tax year, get into the habit of reviewing your transactions regularly.
Keeping your records up to date throughout the year makes quarterly reporting much easier and reduces the risk of missing important deadlines.
What Software Do You Need for Making Tax Digital?
If you’re required to use Making Tax Digital for Income Tax, you’ll need compatible software that can maintain digital records and submit the required updates to HMRC.
One option is FreeAgent, cloud-based bookkeeping software designed for small businesses, freelancers and self-employed people.
FreeAgent can help you:
• Connect eligible business bank accounts and import transactions.
• Record income from customers and clients.
• Categorise business expenses, including materials, tools and fuel.
• Create and manage invoices.
• Keep track of your business finances throughout the tax year.
• Prepare and submit Making Tax Digital updates using its supported features.
How Can You Get FreeAgent Without Paying a Monthly Software Subscription?
FreeAgent is available at no additional subscription cost with certain eligible business bank accounts, including qualifying accounts from NatWest and Metro Bank.
This can be particularly useful for self-employed builders and tradespeople who want to keep their bookkeeping costs down.
You’ll still need to check the bank’s eligibility requirements and any account charges. FreeAgent being included doesn’t necessarily mean the business bank account itself is free.
How MTD Trade Books Uses FreeAgent
At MTD Trade Books, we use FreeAgent to help eligible self-employed tradespeople organise their bookkeeping and prepare their Making Tax Digital quarterly updates.
Our service is designed for straightforward sole-trader businesses, including builders, plumbers, electricians, carpenters and other tradespeople.
By using an eligible business bank account with FreeAgent included, you can avoid paying a separate monthly software subscription while benefiting from an organised digital bookkeeping system.
What Happens If You Miss an MTD Quarterly Update?
If you’ve missed a Making Tax Digital quarterly update deadline, the most important thing is to get your bookkeeping up to date and submit any outstanding information as soon as possible.
Under Making Tax Digital for Income Tax, eligible self-employed people must submit quarterly updates to HMRC using compatible software, even if they have very little business activity during the period.
Will HMRC Fine You for Missing an MTD Quarterly Update?
HMRC operates a points-based penalty system for late submissions. Under the quarterly reporting rules, a missed deadline can result in a penalty point.
Once you reach the relevant penalty threshold, you can receive a £200 financial penalty. Further late submissions may result in additional penalties.
However, HMRC has introduced a temporary relaxation for the first year of mandatory Making Tax Digital for Income Tax. For the 2026/27 tax year, penalty points will not be issued for late quarterly updates.
This does not mean quarterly updates are optional. You must still submit the required information and complete your year-end tax obligations.
How Do You Catch Up on Missed Quarterly Updates?
If you’ve fallen behind, start by gathering your business bank statements, invoices, receipts and details of any CIS deductions.
Your bookkeeping records can then be brought up to date using compatible software such as FreeAgent, allowing outstanding quarterly updates to be prepared and submitted.
Need Help Catching Up?
MTD Trade Books offers a straightforward £99 catch-up service for eligible self-employed tradespeople who need help getting their bookkeeping organised and dealing with outstanding quarterly updates.
We also offer ongoing bookkeeping from £20 per month, helping you keep your records up to date and prepare for future MTD deadlines.
How Much Does Making Tax Digital Bookkeeping Cost?
The cost of Making Tax Digital bookkeeping depends on the complexity of your business, the number of transactions you have and how much help you need.
At MTD Trade Books, we specialise in affordable digital bookkeeping for self-employed builders, plumbers, electricians, carpenters, decorators and other tradespeople.
With over 30 years of experience working in the building trade, we understand the challenges of running a small trade business, dealing with CIS deductions and keeping financial records organised while working on site.
Our Introductory Bookkeeping Prices£99 – MTD Catch-Up Service
If you’ve fallen behind with your bookkeeping or have missed quarterly updates, our £99 introductory catch-up service can help you get organised.
This is designed for straightforward sole-trader businesses needing help with up to two outstanding quarterly updates, subject to reviewing the work required.
£20 Per Month – Ongoing MTD Bookkeeping
Our introductory monthly bookkeeping service helps eligible sole traders keep their digital records organised and prepare their Making Tax Digital quarterly updates using FreeAgent.
This introductory pricing is available for our first five suitable clients.Why Choose MTD Trade Books?
• Over 30 years of practical experience in the building industry.
• Understanding of CIS subcontractors and self-employed tradespeople.
• FreeAgent Accredited Practitioner.
• Affordable, straightforward bookkeeping without unnecessary complications.
• A service designed specifically for sole traders and small trade businesses.
Get Ready for Making Tax Digital Today
Whether you’re preparing for Making Tax Digital in 2027, catching up on outstanding bookkeeping or simply looking for an affordable way to manage your business records, MTD Trade Books can help.
Visit www.mtdtradebooks.co.uk to find out more or get in touch to discuss your bookkeeping requirements.