As a builder, you’ll be used to finding ways to work smarter and faster to get your projects over the line. Now, HMRC is asking you to do the same with your tax. Starting in April 2026, Making Tax Digital (MTD) for Income Tax becomes a must for many sole traders – offering you more accuracy in your bookkeeping, less legwork, and better visibility of your finances.
What’s changing – and what it means for builders
Making Tax Digital for VAT has been live since April 2022, and HMRC reports that 67% of businesses feel that using MTD-compatible software has reduced record-keeping errors, while 80% found the process easy to use – suggesting it can have a positive effect on productivity for businesses.
Now, similar digital requirements are being introduced for income tax, meaning smaller businesses with lower turnovers under the VAT threshold will be introduced to the process for the first time. From 6 April 2026, sole traders and landlords with qualifying income over £50,000 (which HMRC calculate based on the 2024–25 tax year) will need to:
- Use compatible software to keep digital records of income and expenses.
- Submit quarterly updates to HMRC via compatible software.
- File the annual tax return digitally, using that same software.
These quarterly updates aren't tax returns – they're just simple summaries of how your business is doing, in four smaller chunks, pulled from your digital records.
Further roll out is on the cards over the next few years:
- From April 2027: sole traders earning over £30,000.
- From April 2028: sole traders with income over £20,000.
Who needs to sign up?
From April 2026, if you're a sole trader (or a landlord) registered for Self Assessment, and your gross income from self-employment and/or property exceeds £50,000, you will need to comply.
Ahead of April 2026, HMRC will review your most recent tax return and check your qualifying income to assess if you need to go digital. But it’s wise to check your status proactively using HMRC’s eligibility tool.
HMRC won’t sign you up automatically, so it’s important to do this in time. If you’d like to start using it sooner, you can sign up voluntarily on GOV.UK.
You could get ahead and sign up early now for the 2026-2027 tax year, or you can choose to sign up for the testing phase now for 2025-2026 tax year. Joining the testing phase now will give you:
- Access to HMRC’s testing phase, free from penalties for missed quarterly updates.
- Dedicated support from the MTD Customer Support Team.
- A chance to iron out issues early and get comfortable with the software.
What you need to do for MTD
- Estimate your qualifying income from self-employment and property.
- Use the HMRC tool to check if and when you must start using MTD.
- Choose MTD compatible software tailored to your needs (mobile-friendly, integrates with bookkeeping, etc.). If you’re registered with the Construction Industry Scheme (CIS) look out for software that can handle both CIS and MTD. You can use the HMRC software finder tool to help you choose.
- If you work with an agent or accountant, send them the HMRC’s Agent Toolkit and ensure they’re set up in HMRC’s Agent Services and can sign you up.
- Sign up, test the system, and get familiar with quarterly updates and digital record-keeping.
At the end of your tax year, most of your work will already be done – the quarterly updates prepopulate much of the return. Just review, adjust if needed, then submit your Self Assessment.
How this can help your business
Making Tax Digital for Income Tax have several benefits that will help you stay on top of your tax affairs and business planning, supporting you to grow your business.
- No end-of-year scramble: Quarterly updates eliminate last-minute chaos.
- Fewer mistakes: Built-in checks reduce errors and delays.
- Real-time insight: Keep tabs on income and expenses as you work – great for project planning.
Where to learn more about MTD
You can watch a short video or recorded HMRC webinar to better understand the legal requirements of MTD. There are also regular live webinars, including Q&A, covering the steps sole traders should take to take to get ready for MTD, including how to plan for it, actions to take and what to do after signing up. These are also recorded and made available to watch on demand if you can’t catch it on the day (sign up to view the latest webinar here).
Be prepared and avoid penalties
Once MTD for Income Tax is compulsory, missed deadlines accumulate penalty points. After reaching four points, you’ll face a fine.
| Step | Action |
|---|---|
| 1 | Estimate your 2024–25 gross income from self-employment and property or check eligibility online. |
| 2 | Check eligibility with HMRC’s tool. |
| 3 | Find and try out MTD-compatible software. |
| 4 | Sign up early to avoid penalties. |
| 5 | Keep digital records, submit quarterly updates, and file annually via the software |
Find out more
You can find out more about the changes on HMRC’s Making Tax Digital web page, including all the resources mentioned in this article.
Making Tax Digital for Income Tax is transforming the way builders manage their taxes. Embrace digital record-keeping, choose your software wisely, and sign up early to stay ahead. You’ll save time, cut errors, and gain greater clarity – all of which means more focus on building the future.
