Making Tax Digital for Income Tax: what it means for a sole trader decorator

What is Making Tax Digital for Income Tax and why is it happening?

Making Tax Digital for Income Tax (MTD ITSA) is an HMRC requirement to keep business records in digital form and report income and expenses to HMRC on a quarterly basis rather than once a year. According to HMRC, quarterly updates are summaries of income and expenses, not additional tax returns. The Final Declaration, which replaces the old annual Self Assessment return, still falls on 31 January. The payment deadline is also unchanged at 31 January.

HMRC's stated objective is to reduce errors and close the tax gap by moving record-keeping away from the end-of-year scramble. For a decorator, the practical effect is that the once-a-year rush to produce a year's worth of records in January needs to become a process that runs alongside the work throughout the year.

According to GOV.UK, approximately 864,000 sole traders and landlords are in scope from April 2026.

Who has to use MTD ITSA, and when?

Mandation applies in three phases based on qualifying income thresholds, and each phase uses the previous tax year's Self Assessment return to determine whether you cross the line, according to GOV.UK.

Source: GOV.UK. A decorator whose 2024-25 return showed turnover above £50,000 is mandated now. One who came in at £48,000 waits until at least April 2027, if their 2025-26 turnover crosses £30,000.

What counts as qualifying income for MTD?

Qualifying income is total gross turnover from self-employment and property before expenses, based on the previous tax year's return, according to GOV.UK. For most sole trader decorators there is only one source: the gross income from decorating work before any expenses are deducted.

If you also receive rental income from a property you own, that rental income adds to the qualifying income total. The threshold is not a profit figure and it is not a net figure; it is the gross turnover number before anything comes off.

PAYE employed income from a separate job does not count toward the threshold. The FAQ below covers the combined-income case.

What does keeping digital records actually mean for a decorator?

Digital records means each transaction stored in software as a discrete entry, not a folder of receipts assembled in January. According to GOV.UK, a digital record must include three fields: the amount, the date the income was received or the expense incurred, and the category.

The category requirement depends on your turnover. Below £90,000, GOV.UK confirms that sole traders need only record whether a transaction is income or an expense -- simplified categorisation. At or above £90,000, full categorisation is mandatory from the beginning of the current tax year. For most decorators in Phase 1 (turnover above £50,000 but below £90,000), the day-to-day record-keeping is therefore two columns: income in, expense out. What the expenses are called in detail belongs in the allowable expenses guide, not here.

As a practical example: James Renshaw of Renshaw & Co Decorating invoices £972 for a bathroom repaint at 18 Pembroke Rd. Under MTD, that transaction enters his records on the day payment arrives as an income entry, with the amount and date. Each supplier invoice (primer, tape, filler) enters as an expense entry when incurred. Done at the time, the quarterly update is a total of those entries. Left to January, the same volume of work produces the same records under pressure.

Records must be kept for at least 5 years after the 31 January submission deadline for the relevant tax year, according to GOV.UK.

What are quarterly updates -- and what do I submit?

A quarterly update is a summary of your income and expenses for the period, submitted to HMRC through MTD-compatible software, according to HMRC. It is not a tax return and it does not trigger a tax demand. HMRC uses the cumulative quarterly data to provide an estimate of your tax position, but the bill is settled via the Final Declaration.

There are two quarterly schedules. The standard one uses HMRC's tax quarters; an alternative calendar-quarter option uses periods ending on the last day of each month, according to HMRC. Check GOV.UK to confirm whether any conditions apply before electing the calendar-quarter schedule.

Source: HMRC.

What is the Final Declaration: does it replace my January return?

The Final Declaration replaces the annual Self Assessment return. According to HMRC, it is due on 31 January following the end of the tax year, and the tax payment deadline remains 31 January unchanged. The Final Declaration is where you confirm the year's figures, add any adjustments not captured in quarterly updates, and settle the tax bill.

The change from the old process is upstream, not at January. The quarterly updates mean HMRC already holds a running total of your income and expenses before the Final Declaration arrives. The work in January is confirmation and adjustment rather than the full submission from scratch. If records have been kept digitally through the year, the Final Declaration is largely a sign-off rather than a rebuild.

How does the MTD penalty system work?

MTD ITSA uses a points-based system for missed submission deadlines, according to GOV.UK. Each missed quarterly update or Final Declaration earns one penalty point. For mandated sole traders the threshold is 4 points. Reaching 4 points triggers a £200 penalty. Each subsequent missed deadline after the threshold adds another £200.

In 2026-27, HMRC will not apply penalty points for late quarterly updates, per GOV.UK. This soft landing covers the first tax year only. A late Final Declaration still attracts a point in 2026-27, and late payment penalties apply regardless. The soft landing is not a holiday from the system; it is a reprieve specifically for quarterly update submissions in the first year.

The points system and the payment penalty system are separate structures. The FAQ below covers late payment rates and how to clear points once accumulated.

What software do I need: can I use my spreadsheet?

You need software that can submit quarterly updates directly to HMRC via the MTD ITSA API. According to GOV.UK, spreadsheets are acceptable as record-keeping software provided a digital link is maintained to bridging software that handles the HMRC submission.

The two main paths are:

Fully compatible accounting software. HMRC-approved software providers offer packages that store records and submit quarterly updates directly. No separate bridging step is needed. Check the GOV.UK MTD software list for current entries.

Spreadsheet plus bridging software. Your existing spreadsheet stays as the record, and bridging software reads from it and submits to HMRC. According to GOV.UK, HMRC does not provide free MTD ITSA software, but free options exist from third parties for the simplest affairs. Check the GOV.UK MTD software list for current entries.

One rule applies to both paths: once a record enters the submission chain, manual re-entry or copy-paste between software is prohibited, according to GOV.UK. A digital link must be maintained throughout. Copy-pasting totals from your spreadsheet into another tool is not a digital link; it breaks the chain. The software must read directly from the source file.

If you use a quoting app to record jobs as they are invoiced, confirm with your software provider whether it supports a digital link into your record-keeping tool or directly into MTD submission. That is the question to ask, not whether the app looks tidy.

Can I sign up early -- and should I?

Voluntary sign-up is available before the mandatory date for your phase. Signing up early means you enter the quarterly update schedule immediately, so the practical question is whether your records are already in a state where quarterly submissions are manageable.

One reason to sign up early: the 2026-27 soft landing on quarterly-update penalty points covers voluntary sign-ups too, giving you a full tax year to build the habit before penalty exposure begins. See the penalty section above for how the soft landing works.