How Much Does Making Tax Digital Cost a Sole Trader?

For most sole traders, Making Tax Digital for Income Tax (MTD for IT) is not a new tax. The real cost is software plus a little more time. Compatible software ranges from free (simple affairs, with usage limits such as transaction caps) up to roughly £10 to £20+ a month for a full package, and because software bought for the business is an allowable expense, the net cost after tax relief is lower.

Below we break down the four real cost components, show a worked example for a £60,000-turnover sole trader, and set out the timetable, deadlines and penalties exactly as gov.uk states them today. We also flag the important Autumn Budget 2026 announcement, because the published guidance had not caught up at the time of writing.

So what does MTD actually cost a sole trader?

There is no fee payable to HMRC for MTD itself. Your costs fall into four buckets: software, your own time, optional accountant or bookkeeper fees, and the risk of penalties if you get it wrong. For a typical sole trader with straightforward records, software is the only unavoidable cash cost, and it is modest. HMRC does not sell its own product and does not recommend any provider, so you choose commercial MTD-compatible software from the market.

Cost component 1: software

A sole trader keeping on top of his bookkeeping on a laptop at a tidy home desk, with a leafy houseplant nearby

You must use MTD-compatible software to keep digital records and send updates to HMRC. HMRC publishes a free "find software" tool and "choose the right software" guidance so you can compare products and filter by price, including free options. Bridging software can also link existing spreadsheets to HMRC if you prefer to keep your figures in a spreadsheet.

Free products do exist "for those with simple tax affairs", but gov.uk warns "there may be limits on how the product can be used", for example a limited number of transactions. Paid plans unlock more features and higher limits.

Indicative software cost tiers

The prices below are typical market prices to help you budget. They are not gov.uk figures, so always check the current price and the HMRC find-software tool before you commit.

Tier	Typical price	What it usually includes	Caveat
Free	£0	Basic digital record-keeping and quarterly updates for very simple affairs	Usage limits, often a cap on the number of transactions
Low-cost paid	Around £7 to £10 + VAT a month	Digital records, quarterly updates, the year-end tax return, mobile app and bank feeds	Higher limits than free, but still an entry-level plan
Full package	Roughly £10 to £20+ a month	Invoicing, expense capture, reporting, fuller bookkeeping and support	More than most single-trade sole traders strictly need

If you want help comparing products for your situation, our guide to the best MTD software for UK small businesses walks through the options.

Cost component 2: your time

Under MTD for IT you send four quarterly updates a year and then complete a year-end step, rather than filing once after the tax year. That means more frequent record-keeping, and digital records are mandatory. The honest cost here is time: setting up software, categorising income and expenses through the year, and reviewing each quarter.

Good habits cut this sharply. If you reconcile little and often instead of in a year-end panic, each quarterly update becomes a short review rather than a weekend of catch-up. Our self-employed bookkeeping guide and the walkthrough on how to digitise receipts for HMRC under MTD show how to keep the admin to minutes a week.

Cost component 3: accountant or bookkeeper fees

This cost is optional but common. Many sole traders will pay an accountant or bookkeeper to run the quarterly updates and the year-end return, especially while MTD is new. It is a genuine cost to weigh, but it buys back your time and reduces penalty risk. For typical fee ranges, see our breakdown of how much an accountant costs in the UK.

Cost component 4: penalty risk, the cost of getting it wrong

Penalties are a real cost if deadlines slip. MTD for IT uses a points-based late-submission regime: you get one point for each missed quarterly update. At a four-point threshold you receive a £200 penalty, then a further £200 for each additional late submission. Points below the threshold expire after 24 months.

There is an important easement: for the 2026 to 2027 tax year there are no penalties for missing a quarterly update deadline, in gov.uk's wording. Late-payment penalties still apply, however. You get a 30-day grace period to pay your tax or agree a Time to Pay plan, after which penalties start to accrue.

Worked example: a sole trader with £60,000 turnover

Priya is a self-employed consultant with gross turnover of about £60,000. She chooses a low-cost plan at roughly £10 a month, so £120 a year of software. She keeps her own books but pays an accountant a modest fee to review and submit the year-end return.

Software bought for the business is an allowable expense, so she deducts the £120 from her profits. At the 20% basic rate, £120 of software costs about £96 net after tax relief. If she were a 40% higher-rate taxpayer, the same £120 would cost about £72 net. So the headline price overstates the real cost.

Software: £120 a year (about £96 net at 20%, about £72 net at 40%)
Time: a short review each quarter if records are kept little and often
Accountant: optional, scaled to how much you want to hand over
Penalties: £0 if you hit the deadlines (and no quarterly-update penalties at all in 2026-27)

To sanity-check what to set aside for the tax itself, use our self-employed tax calculator and read how much a sole trader should put aside for tax.

When does MTD for Income Tax start, and does it apply to me?

Per gov.uk today, the timetable is phased by qualifying income:

From 6 April 2026 for sole traders and landlords whose qualifying income is over £50,000 (tested on the 2024/25 return).
From 6 April 2027 for qualifying income over £30,000 (tested on the 2025/26 return).
The £20,000 phase is still shown on gov.uk as 6 April 2028 (tested on the 2026/27 return).

Important: Autumn Budget 2026 announcement

At the Autumn Budget on 28 October 2026, the government announced it is "deferring the roll-out of Making Tax Digital for Income Tax to several taxpayer groups until further notice". At the time of writing, HMRC had not yet updated its published guidance to name the deferred groups or revise the dates. We are therefore not stating on gov.uk authority that any particular band is deferred. Check gov.uk for the latest position before you plan around it.

What counts as qualifying income?

Qualifying income is your total gross income from self-employment and property before expenses, in other words your turnover, not your profit. It is assessed on your previous tax year's return. So the £50,000 test looks at your 2024/25 figures, the £30,000 test at 2025/26, and the £20,000 test at 2026/27. Because it is gross, a sole trader with high turnover but slim margins can still be in scope.

What are the quarterly deadlines?

You send four updates a year. The standard quarterly deadlines are:

7 August
7 November
7 February
7 May

The year-end step is to submit your tax return through MTD-compatible software. This replaces the separate Self Assessment return you used to file; it is not an extra return on top. For a deeper look at the first cycle, see our guide to the MTD Income Tax first quarterly deadline on 7 August 2026.

How to keep the cost down

Start with the HMRC find-software tool and filter by price, including free tiers, then match the plan to your real transaction volume so you are not overpaying for features. Keep digital records as you go to minimise time. Claim the software as an allowable expense so you get the tax relief. And if you would rather not run the quarters yourself, factor in an accountant fee as a considered choice, not a default. To understand how your profit (and therefore your tax) is worked out, read how to work out taxable profits as a sole trader.

How Zmartly can help

Zmartly is a CIMA-regulated accounting firm and our team are qualified accountants. We help sole traders choose the right MTD software, set up tidy digital records and run the quarterly updates and year-end return so nothing slips. See our Self Assessment and MTD services or the dedicated page for sole traders. Want to understand the whole regime first? Start with our pillar guide to Making Tax Digital for Income Tax.

Book a free call with Zmartly and we will give you a clear, fixed quote for getting MTD-ready.

Frequently asked questions

Is there a fee to HMRC for Making Tax Digital?

No. HMRC does not charge a fee for MTD for Income Tax and does not sell its own software. Your costs are commercial MTD-compatible software, your time, optional accountant fees and any penalties for missing deadlines. Software you buy for the business is an allowable expense.

Can I use free MTD software as a sole trader?

Yes, for simple tax affairs. Gov.uk confirms free products exist, but warns there may be limits on how they can be used, such as a cap on the number of transactions. Use HMRC's find-software tool to compare free and paid options, and check the usage limits fit your business.

How much is MTD software a month?

As an indicative market guide, low-cost paid plans are typically around £7 to £10 + VAT a month, and fuller packages roughly £10 to £20+ a month, with free tiers for simple affairs. These are market prices, not gov.uk figures, so check the current price and the HMRC find-software tool before you commit.

Will I be penalised if I miss a quarterly update in 2026-27?

No. In gov.uk's wording, for the 2026 to 2027 tax year there are no penalties for missing a quarterly update deadline. After that, a points-based regime applies: a £200 penalty at four points, then £200 per further late submission. Late-payment penalties still apply, with a 30-day grace period to pay or agree a Time to Pay plan.