Making Tax Digital: what it means for UK tradespeople

If you run a trade business in the UK, the tax office now expects digital records and online filing. This is called Making Tax Digital. It started with VAT. It now covers income tax too.

Here is what it means for you, in plain English.

What is Making Tax Digital

Making Tax Digital is HMRCs plan to move tax online. Paper records and manual typing are out. You must keep digital records and send your figures to HMRC through approved software.

There are two parts that matter for tradespeople.

Part one: VAT

If your business is VAT registered, you already live with this. Since April 2022 every VAT registered business must keep digital records and file VAT returns through MTD compatible software. Typing figures into the HMRC website by hand is no longer allowed.

Part two: income tax

This is the new part. From 6 April 2026, self employed people and landlords with qualifying income over £50,000 must keep digital records and send HMRC a summary update every quarter. There is also a final declaration at the end of the tax year. All of it goes through approved software.

The threshold falls over time. From April 2027 it covers income over £30,000. From April 2028 it covers income over £20,000. So even if you are out of scope today, you may be pulled in soon.

Qualifying income means gross income from self employment and property, before expenses. Wages from a day job do not count.

What you need to do

1. Keep digital records. Every invoice you send and every expense you claim must live in software. Not in a shoebox. For VAT you must keep these records for six years.

2. Use approved software. HMRC publishes a list of MTD compatible software. A spreadsheet on its own does not count. You can only use a spreadsheet with extra bridging software that links it to HMRC. For most tradespeople, proper software is simpler.

3. Get into a quarterly rhythm. If you are in scope for income tax, you send four updates a year plus a final declaration. The deadlines are fixed. Miss the rhythm and the admin piles up fast.

4. File even when you cannot pay. This one is important. See the penalties section below.

Penalties in plain English

VAT now runs on a points system. Every late VAT return gives you one point. If you file quarterly, four points means a £200 fine. Every late return after that can mean another £200.

Paying late is a separate penalty, with interest on top of the amount owed.

So the golden rule is simple. Always file on time, even if you cannot pay yet. Filing late and paying late together is the most expensive combination.

For the new income tax quarterly updates, HMRC has said it will not charge penalty points for late updates in the first year. But the duty to keep digital records applies from day one.

How PlusWise helps

PlusWise already keeps your invoices, expenses, and client records in one digital place. That is the exact foundation that Making Tax Digital asks for.

We are now building a direct HMRC integration for PlusWise. The goal is simple. See your VAT obligations and their deadlines inside the app. Prepare your return from your real figures. Review everything on screen. Then submit to HMRC without retyping a single number.

Nothing will ever be sent to HMRC without you reviewing the exact figures first.

Quick answers

What if I am not VAT registered and I earn under £50,000? Then MTD does not force anything on you yet. But the thresholds are falling every year, so keeping digital records now saves you pain later.

Can I still use a spreadsheet? Only with bridging software that connects it to HMRC. For most tradespeople, dedicated software is less hassle.

Do quarterly updates mean I pay tax four times a year? No. The quarterly updates are summaries, not payments. You still pay on the normal schedule. The final declaration settles the year.

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Sources checked September 2026: HMRC guidance on Making Tax Digital for VAT and Income Tax Self Assessment; HMRC VAT penalty points guidance.