A spreadsheet on its own is no longer a complete system. From 6 April 2026, sole traders inside Making Tax Digital for Income Tax must create and store their records in software that works with the service, and send four quarterly updates a year as well as a return. A spreadsheet can still be where the numbers live — but something has to carry them to HMRC, and it cannot be you retyping them.
A workable system needs four things: a separate business bank account, software that talks to HMRC, records carrying the three fields HMRC requires, and a fixed monthly habit.
Who is in, and when
| Qualifying income over | Measured on the tax year | Mandated from |
|---|---|---|
| £50,000 | 2024/25 | 6 April 2026 — in force now |
| £30,000 | 2025/26 | 6 April 2027 |
| £20,000 | 2026/27 | 6 April 2028 |
Qualifying income is your gross self-employment and property income before expenses. Partnerships are not yet in scope and HMRC has not published a timeline.
HMRC reviews your return each year and writes to confirm when you must start. If no letter arrives it is still your responsibility to check — HMRC says so directly. Exemptions exist, including for digital exclusion; if you are exempt you stay in normal Self Assessment.
What a digital record has to contain
Three fields, for every transaction: the amount, the date the income was received or the expense incurred, and the category.
Making Tax Digital uses the same income and expense categories as Self Assessment, so nothing new has to be learned. HMRC never sees individual records — a quarterly update sends category totals, not your receipts.
There is a real easement for smaller businesses. Where turnover from a source of self-employment is below the VAT registration threshold of £90,000, you can categorise in less detail. A sole trader below that threshold only needs to record whether a transaction is income or an expense. That is a two-column system.
One warning attached to it. If turnover for that income source reaches £90,000, you must go back and categorise every digital record in full — from the start of the current tax year and through the following tax year — before you can send a quarterly update or submit your return. If you are anywhere near the threshold, categorise properly from the start.
If you run more than one sole trader business, each one needs its own digital records and its own quarterly updates. An electrician who also teaches driving keeps two sets.
Why a spreadsheet alone stops working
You have two legitimate routes. Software that creates the records connects to your bank feed, scans receipts or takes manual entry, and usually handles everything: records, quarterly updates and the return. Bridging software connects to records you already keep in a spreadsheet or another accounting tool and makes the submissions for you. If you like your spreadsheet, this is how you keep it.
What you cannot do is keep a spreadsheet and type the totals into something else. Once a digital record has been created and sent to HMRC in a quarterly update, you must not move it manually — no rewriting figures into another cell or product, and no cut-and-paste or copy-and-paste. Where you use more than one product the records must be digitally linked: linked spreadsheet cells, CSV or XML import and export, an automated data transfer, an API, or emailing the spreadsheet across for import.
A bank feed is a starting point, not the finished record. Some transactions do not appear in full and you may need to add the category yourself. Checking accuracy before you send an update is your responsibility, not the software’s.
The quarterly rhythm
Two sets of update periods exist and the deadlines are identical.
| Standard period (tax year) | Calendar period (1 April year end) | Deadline |
|---|---|---|
| 6 April – 5 July | 1 April – 30 June | 7 August |
| 6 April – 5 October | 1 April – 30 September | 7 November |
| 6 April – 5 January | 1 April – 31 December | 7 February |
| 6 April – 5 April | 1 April – 31 March | 7 May (following tax year) |
Then a year-end return by 31 January, as before.
Three things about updates surprise people:
- Each update is cumulative. It covers from the start of the tax year to the end of the period, not just the last three months — so an error corrected later is picked up by the next update rather than by resending the old one.
- A nil quarter still needs an update. No income and no expenses still requires a submission saying so.
- Quarterly updates are not tax returns. They are summaries. No accounting or tax adjustments are needed, and reliefs and allowances are dealt with at the year end.
If your accounting period ends on 31 March, pick calendar update periods in your software before you send the first update — you cannot change it for that tax year afterwards.
The monthly habit that makes it work
Do one hour a month and the quarters look after themselves.
- Separate the money. A dedicated business account removes most of the categorising work before it starts.
- Reconcile monthly, on a fixed date. Match every transaction to a record. Anything you cannot identify gets chased that month, not in January.
- Capture receipts at the point of spend. Photograph and file immediately — you still have to keep the originals.
- Review before each deadline, not on it. You can send an update any time from the end of the period to the deadline, and up to 10 days early if no further transactions are coming.
Cash basis and simplified expenses
Cash basis is the standard method for sole traders and partnerships without corporate partners — income and expenses recorded when money moves, not when you invoice or are billed. Traditional accounting is optional and needs more records: debtors, creditors, stock and work in progress, year-end bank balances, capital introduced and drawings.
Simplified expenses are flat rates used instead of actual costs. If you are sure you will use a scheme you do not need digital records of the costs it replaces — but you must make an adjustment before you finalise your Income Tax position. If you are not sure, record everything.
For 2026/27: 55p a mile for the first 10,000 business miles, 25p above that, 24p for motorcycles; £10, £18 or £26 a month for working from home depending on hours, with a 25-hour monthly minimum; and £350, £500 or £650 a month deducted from premises costs where you live at your business premises. GOV.UK now labels 45p as the rate “before 6 April 2026”.
Retention, and the 2026/27 penalty grace period
Keep digital records for at least five years after the 31 January submission deadline for the tax year — the same period as Self Assessment. Keep the originals too: bank statements, invoices and receipts. The digital record is a summary of the transaction, not evidence of it. File more than four years after the deadline and you must keep everything for 15 months after sending the return.
HMRC will not apply penalty points for late quarterly updates during the 2026/27 tax year. That is the only concession. Records and updates are still required, you cannot submit your return until every update is in, and penalty points and late payment penalties still apply to the return itself. From 2027/28 a missed update earns a point; four points brings a £200 penalty, and £200 for each subsequent miss.
Frequently asked questions
Can I still use a spreadsheet under MTD for Income Tax?
Yes, but not on its own. You need bridging software that connects to the spreadsheet and makes the submissions to HMRC. What you cannot do is keep a spreadsheet and manually retype the totals into something else — once a record has been sent in a quarterly update it must not be moved by copy-and-paste.
What exactly has to be in a digital record?
The amount, the date the income was received or the expense was incurred, and the category. MTD uses the same categories as Self Assessment. If your turnover from that business is below the £90,000 VAT registration threshold, a sole trader only needs to record whether a transaction is income or an expense.
What are the quarterly update deadlines?
7 August, 7 November, 7 February and 7 May, followed by a year-end return by 31 January. The deadlines are the same whether you use standard update periods aligned to the tax year or calendar update periods for a 31 March year end.
Do I have to send an update if I had no income that quarter?
Yes. If you received no income and incurred no expenses in an update period you must still send the quarterly update to tell HMRC. You will not be able to submit your tax return until every update for the year has been sent.
How long do I have to keep my records?
At least five years after the 31 January submission deadline for the tax year, which is the same as Self Assessment. You must keep your original documents as well as the digital records. If you file a return more than four years after the deadline, keep the records for 15 months after you send it.
Start before you have to
If your tier is 2027 or 2028, the useful move now is not choosing software. It is separating the bank account and establishing the monthly habit, so that when the software arrives it has something clean to read.
SmartFiling handles Self Assessment and MTD for Income Tax on a fixed fee, including quarterly updates where MTD applies and the year-end return. Every submission is reviewed by an ICAEW Chartered Accountant, and turnaround is three weeks from receiving your records.
