Making Tax Digital is Coming — What Scottish Sole Traders Need to Know
What is Making Tax Digital for Income Tax?
Making Tax Digital (MTD) for Income Tax is a major HMRC initiative that changes how self-employed people and landlords report their income. Instead of filing one annual Self Assessment tax return, you will need to submit income and expense summaries to HMRC every quarter, plus a final year-end declaration. It is one of the most significant changes to personal tax reporting in decades.
Who does it affect from April 2026?
From 6 April 2026, MTD for Income Tax becomes mandatory for sole traders and landlords with annual income over £50,000. The threshold drops to £30,000 from April 2027, and £20,000 the year after. If you are currently filing a Self Assessment return and earn above these thresholds from self-employment or property, you need to start planning now.
What changes in practice?
Under MTD, you will need to use HMRC-recognised software to keep digital records and submit quarterly updates — broadly covering April to June, July to September, October to December, and January to March. After the final quarter, you submit an End of Period Statement and a Final Declaration to confirm your tax position for the year. HMRC has confirmed there will be no late submission penalties for missing quarterly updates in the first year for those joining before it's mandatory in April 2026, giving some breathing room as everyone adjusts.
The Scottish dimension
For Scottish taxpayers, there is an additional layer of complexity. Scotland operates six income tax bands on non-savings, non-dividend income, compared to three in the rest of the UK. This distinction matters when your accounting software calculates liabilities — you need to make sure your software is correctly applying Scottish rates before your first submission, or you may be reporting incorrect figures from day one.
What should you do now?
The most important step is to start early. Choose HMRC-recognised software — Xero is our recommendation for most sole traders and small businesses and Dext is our recommendation for a simpler set up — then begin keeping digital records now rather than waiting until April. If you are not sure whether MTD applies to you, or you want help choosing and setting up the right software, get in touch with our Edinburgh or Glasgow team for a straightforward conversation.