What UK Construction Workers, Freelancers & Sole Traders Need to Know About Making Tax Digital in 2026

Making Tax Digital (MTD) is one of the biggest changes to the UK tax system in decades — and it’s coming in April 2026. 

If you’re self‑employed, a sole trader, freelancer, or in construction and earning over £50,000 a year, this will affect how you manage your tax records from now on.

Let’s break it down into simple, useful points so you know what to expect — without the jargon.

1. What is Making Tax Digital (MTD)?

Making Tax Digital is the UK government’s plan to move from old‑fashioned paper and manual tax reporting to a fully digital tax system. It’s designed to make tax reporting more accurate and up to date, but it also brings new rules you’ll need to follow.

Under MTD, you must:

• Keep digital records of your income and expenses using HMRC‑approved software

• Submit quarterly updates of your business figures

• Use software that’s recognised by HMRC — spreadsheets alone won’t be enough unless they’re connected through an approved tool (called bridging software)

This replaces the old Self Assessment return you may be used to.

2. Who Has to Comply in 2026?

From 6 April 2026, MTD for Income Tax will be mandatory if you’re a sole trader or self‑employed and your gross income from self‑employment and/or property is over £50,000. That means if your business or construction work brings in more than £50k before expenses, you’ll need to follow the new system.

This rule applies whether you’re a:

• Builder or tradesperson

• Freelancer or contractor

• Consultant

• Self‑employed professional

• Landlord (if you also earn rental income)

It’s a phased approach — the threshold then falls to £30,000 in April 2027 and £20,000 in 2028 for more sole traders and landlords.

3. What Exactly Will Change for You Under MTD?

If you’re earning over £50,000, here’s what the shift to MTD really means:

1. Keep digital records all year: No more paper folders or random spreadsheets. Your income and expenses need to be logged digitally.

2. Quarterly submissions instead of one yearly return: You’ll send HMRC four updates a year, not just one big Self Assessment after the tax year ends.

3. Use MTD-approved software: Platforms like Xero software will be required to submit updates.

4. You’ll still complete a final declaration: At the end of the year, you’ll confirm your figures — similar to a Self Assessment, but with digital records behind it.

This means the process becomes more frequent, but with the right setup, it can actually be smoother than rushing everything at the deadline.

4. Why HMRC Is Making the Change

HMRC says digital tax reporting helps reduce errors, keeps you up to date on your obligations, and can even save time in the long run. The move is also part of broader efforts to modernise UK tax administration and cut down on mistakes and fraud.

However, studies show many sole traders and small business owners still feel confused or intimidated by bookkeeping and digital tax systems. Improving digital skills and tools is crucial to making this change work for you.

5. What Happens If You Ignore It?

Because this is now mandatory for people with qualifying income, missing quarterly submissions or late digital filing can lead to penalties. HMRC has emphasised that early preparation can help you avoid fines or unnecessary costs.

(As a side note, during the first transition year, some penalties may be reduced or waived to help people adjust — but ignoring MTD is still risky.)

6. What You Should Do Now

If you think you’ll be affected in 2026:

1. Check your income: If your business brings in over £50,000 gross per year, you need to prepare.

2. Choose MTD‑approved software: Tools like Xero, QuickBooks, FreeAgent, or bridging software will help you keep compliant.

3. Start keeping digital records now: This makes the first quarterly report much easier.

4. Contact a professional: An accountant experienced with MTD can help set everything up and avoid mistakes.

7. Final Thought

Making Tax Digital is a big change — but it doesn’t have to be stressful. If you start early and get the right digital tools in place, you’ll not only comply with HMRC requirements but also get a clearer picture of your business finances throughout the year.

Ready to get prepared for MTD 2026? Contact us to learn more and make your transition smooth and stress‑free.