Making Tax Digital for sole traders: what to do, and the cheapest way to do it.
Start with what you already do, not with a software brand. If you already keep good digital records, you may need very little. If you are starting from paper, a free bookkeeping route may save you more work than you expect.
Last checked 23rd September 2026.
Who has to use it, and when
HMRC looks at your qualifying income: your total income from self-employment and property, before expenses, taken from an earlier tax return. So a sole trader with £27,000 of turnover and £25,000 of rent has £52,000 of qualifying income. Our page Do I need Making Tax Digital? covers the exceptions.
What changes for you
Digital records. You must keep a digital record of each item of income and expense, including the amount, the date and a category, in software that works with Making Tax Digital, or in a spreadsheet digitally linked to such software.
Quarterly updates. Every three months your software sends HMRC a summary. HMRC describes these as summaries, not tax returns
, made up of totals for each category. For the 2026 to 2027 tax year they are due by 7th August 2026, 7th November 2026, 7th February 2027 and 7th May 2027. Each update covers the tax year so far, so you can correct earlier figures without resending anything.
The tax return. You still submit a tax return by 31st January, through your software.
Worth knowing. HMRC says it will not apply penalty points for late quarterly updates during the 2026 to 2027 tax year. You must still send them before you submit your tax return.
Four ways to comply
| Route | Examples in our data | Normal yearly cost | Suits |
|---|---|---|---|
| Free standalone software | Clear Books Free, Pandle Free, Sage Sole Trader Free, the Pie app | £0 | Most sole traders who are not VAT registered |
| Free with a business account | Tide, Starling, Monzo, Mettle with FreeAgent, FreeAgent through NatWest, RBS or Ulster Bank | £0 software cost | People who already bank there |
| Keep your spreadsheet | My Tax Digital, ANNA, Coconut bridging | £0 to £99.98 | People whose spreadsheet already works |
| Paid accounting software | FreeAgent Sole Trader, Xero Ignite, QuickBooks Sole Trader Plus | £144 to £259.20 including VAT | VAT, full accounts, or working with an accountant |
Costs are standard yearly prices, using the annual plan where a provider offers one, not introductory offers. Provider pages checked 22nd and 23rd September 2026. Our free MTD software page sets out the catch with each free route.
If you are VAT registered
VAT changes the answer. Most free Income Tax products do not do VAT returns. In our data, the free routes that also cover VAT are Pandle Free, My Tax Digital, Mettle with FreeAgent, and FreeAgent through a NatWest group bank. If you want one paid product for both, FreeAgent Sole Trader on its annual plan (£228 a year including VAT) and Xero Ignite (£259.20) both handle them. QuickBooks Sole Trader Plus is cheaper, but QuickBooks says direct VAT submission to HMRC is not available on that plan.
If you run more than one business
HMRC says you need to send your quarterly updates to HMRC every 3 months for each self-employment and property business you have
. Check that the product you choose can handle each business, and remember that you can only use one product for each separate submission.
If you also let property
Your rental income is a separate income source with its own quarterly updates, but it counts towards the same qualifying income. Some services handle both income types. In our data, Clear Books Free, the Pie app and My Tax Digital do, although separate businesses or submissions may still be required within the service. Our landlords page covers the property side.
Do you need a business bank account?
Making Tax Digital does not require you to open a business bank account. Some routes bundle free software with a business account, and those can be good value if you already bank there. MTD Magpie treats them as an option, not a requirement, and our finder asks whether you would open a new account before it suggests one.
Questions sole traders ask
Do I need a business bank account for Making Tax Digital?
Making Tax Digital does not require you to open a business bank account. Some routes bundle free software with a business account, and those can be good value if you already bank there, but they are an option, not a requirement.
I have two businesses. Do I send one quarterly update or two?
Two. HMRC says you need to send quarterly updates every 3 months for each self-employment and property business you have.
What if I make a mistake in a quarterly update?
Each update covers the tax year so far, not just the last three months, so HMRC says you can correct your records without resending previous updates.
What is the cheapest way for a sole trader to meet Making Tax Digital?
For most sole traders who are not VAT registered, a free product is enough. Several free products keep the records, send the quarterly updates and submit the tax return. If you already bank with Tide, Starling, Monzo, Mettle or a NatWest group bank, check the tool that comes with your account first.
Find my sole trader route See our picks by situation
Sources
- GOV.UK, Send quarterly updates, checked 23rd September 2026.
- GOV.UK, Create digital records, checked 23rd September 2026.
- GOV.UK, Work out your qualifying income, checked 23rd September 2026.
- Each provider's own page, checked 22nd or 23rd September 2026. The address for each is in our comparison database.