How Accountants Can Prepare Sole Trader Clients for MTD for Income Tax

The UK tax landscape is changing, and for sole traders and the accountants who support them, the shift to Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is one of the biggest updates in years. From April 2026 onwards, millions of sole traders and landlords will need to keep digital records and submit quarterly updates to HMRC.

For accountants, this creates both challenges and opportunities. Firms that prepare now will not only keep their clients compliant but also strengthen long-term relationships with sole traders who rely on their guidance.

What is MTD for Income Tax?

MTD for Income Tax is part of HMRC’s wider digital transformation, designed to simplify tax administration and reduce errors. Instead of filing a single annual Self-Assessment tax return, affected taxpayers will:

• Keep digital records of income and expenses.

• Submit quarterly updates through MTD-compatible software.

• Finalise their income with an end-of-period statement and a final declaration at the end of the tax year.

This system aims to provide HMRC with more accurate, timely data, while giving taxpayers better visibility of their tax position throughout the year.

Who Does It Affect?

The rollout will begin in April 2026. From that date, it will apply to:

• Sole traders and landlords with annual gross income above £50,000.

• From April 2027, the threshold lowers to £30,000.

• From April 2028, the threshold drops further to £20,000.

Gross income refers to total turnover before deducting expenses, and the threshold applies to the combined total of self-employment and property income. Those below the threshold remain on the traditional Self-Assessment system (at least for now).

What It Means for Sole Traders

For sole traders, MTD represents a shift in mindset as much as a change in reporting. No longer will it be enough to keep receipts in a shoebox and deliver them to an accountant once a year. Instead, traders must:

• Record transactions digitally – every sale and every expense.

• Categorise expenses correctly according to HMRC’s standards.

• Use approved software to keep records and submit returns.

While this might feel like added pressure, it can also bring benefits. Quarterly updates allow sole traders to see their tax position in real time, making it easier to budget for tax bills and understand cash flow.

What MTD means for Accountants and Bookkeepers

For accountants, MTD changes the rhythm of client work. Rather than a single annual deadline, firms will need to support clients through four quarterly submissions plus the end-of-year filings. This means:

• More frequent contact with sole trader clients.

• A need for robust digital systems that integrate seamlessly with HMRC.

• Opportunities to offer higher-value advisory services instead of just compliance.

Firms that prepare early can position themselves as trusted digital advisors. By guiding clients on software choices, setting up streamlined processes, and providing ongoing support, accountants can turn compliance into a relationship-building exercise.

Key Challenges Ahead

1. Software Adoption
   Many sole traders still rely on spreadsheets or even paper records. Transitioning them to compliant software will take time and education.

2. Client Education
   Sole traders will need guidance on how to record transactions correctly and on time. Training and clear communication will be essential.

3. Workload Management
   Quarterly submissions mean more deadlines. Firms must invest in efficient workflows and possibly automation to manage the increased workload without overwhelming staff.

Opportunities for Accountants

While the shift to MTD may seem daunting, it also creates space for accountants to differentiate themselves. By embracing digital-first practices, firms can:

• Deliver proactive tax planning based on real-time data.

• Offer cash flow insights and business advice beyond compliance.

• Strengthen client loyalty by reducing stress and making compliance seamless.

In short, accountants who act as partners in digital transformation will become indispensable to sole traders navigating MTD.

How to Prepare Now

To get ahead of the curve, accountants should start with three key steps:

1. Identify Affected Clients
   Review your client list and flag sole traders and landlords with gross income above £50,000. These clients will need to be ready by April 2026.

2. Choose and Test Software
   Partner with MTD-compatible software providers and begin migrating clients gradually. Testing the systems early will help you uncover potential issues before deadlines hit.

3. Communicate Clearly
   Sole traders may be unaware of how significant these changes are. Provide simple guides, host workshops, or send newsletters to educate clients and build confidence.

Looking Ahead

MTD for Income Tax is more than just a compliance requirement – it is a catalyst for the wider digitalisation of accounting. For sole traders, it may feel like an added burden, but with the right support, it can actually simplify tax management. For accountants, it is an opportunity to evolve from number-crunchers into trusted business advisors.

Those firms that embrace change now will be best positioned to thrive in 2026 and beyond.