How to set up MTD-compatible digital records from scratch
The short answer
Making Tax Digital for Income Tax (MTD ITSA) begins for UK sole traders and landlords on 6 April 2026 once your qualifying income passes £50,000, then £30,000 from 2027 and £20,000 from 2028. You must record every sale and expense in HMRC-recognised digital software and send HMRC a summary four times a year. InvoiceAdept keeps your records MTD-ready for free.
What are MTD digital records?
Under MTD ITSA, HMRC requires you to record all income and expenses digitally in HMRC-recognised software and send a summary four times a year. This replaces the old end-of-year Self Assessment-only approach, so you record as you go rather than scrambling at the deadline.
The records must stay digital. A spreadsheet alone gets you part of the way, but you need bridging software to pass your figures to HMRC. A proper digital system removes manual re-keying and keeps a clean, auditable trail you can hand to your accountant.
What UK tax rates and thresholds apply?
While you build your records you will come across several rates and thresholds. These are the ones that matter for a tradesperson moving to MTD.
Tax area | Rate or threshold | What it means for you |
|---|---|---|
MTD ITSA | £50,000 (6 Apr 2026), £30,000 (2027), £20,000 (2028) | The income stage at which MTD ITSA applies to you |
VAT registration | £90,000 taxable turnover | Register once turnover passes this in a rolling 12 months |
CIS deductions | 20% / 30% | Contractors deduct 20% from registered subcontractors, 30% otherwise |
Class 4 NICs | 6% / 2% | 6% on profits from £12,570 to £50,270, then 2% above |
Check the official figures on gov.uk MTD guidance and gov.uk CIS guidance.
How do I choose HMRC-recognised software?
Look for software that submits directly to HMRC, offers real-time bank feeds, and lets you categorise for your own trade. Price and usability matter too, because the best tool is the one you actually open. A simple invoicing and record app earns its keep far more than a powerful ledger you avoid.
InvoiceAdept is built for UK tradespeople: it produces compliant invoices, tracks payments and keeps your records digital and MTD-ready from the very first invoice. See our invoicing features and pricing.
Many UK tradespeople also find it helpful to review Making Tax Digital for sole traders at this stage.
How do I set up MTD-compatible digital records from scratch?
Work through these six steps in order and you will be ready well before your first quarterly update.
Pick your HMRC-recognised software and set up your business profile.
Link your business bank account so transactions import automatically.
Add opening balances for existing equipment, stock and money owed.
Create trade-specific expense categories such as materials, fuel, tools, subcontractors, insurance and PPE.
Run through a real job: log the purchase, raise the invoice and record the payment.
Set quarterly reminders and do a first end-of-quarter reconciliation so nothing surprises you.
Which expense categories should I use for my trade?
Good categories keep your records clean so a quarterly update takes minutes. Build them around the costs you really carry.
Materials: everything you buy to complete the work.
Fuel: travel between jobs, the yard and suppliers.
Tools: purchases, hire and maintenance of kit.
Subcontractors: payments to anyone you bring in to help.
Insurance: public liability, tools and van cover.
PPE: the protective equipment you are required to provide.
How do quarterly MTD submissions work?
Each tax year you send HMRC four quarterly updates covering income and expenses, then a final end-of-period statement. You spread the work through the year instead of doing it all in one go, and because your records are digital the figures are already there to send.
If you are sorting this alongside other compliance work, read MTD quarterly updates guide.
InvoiceAdept keeps every invoice and payment in one place, so your numbers reconcile cleanly whenever a submission is due. Learn how it all fits together in our Making Tax Digital guide.
How do CIS deductions affect my records?
If you work in construction as a subcontractor, your contractor must deduct 20% from your payments under the Construction Industry Scheme, or 30% if you are not registered with HMRC for CIS. Record the gross contract, the amount deducted and the net payment in your digital records so that what you log matches your CIS statements.
InvoiceAdept has CIS invoices built in, so a labour-only bill shows the deduction and the net amount owed clearly. See gov.uk on the Construction Industry Scheme for the full rules, including the lower 20% rate for registered subcontractors.
Digital records checklist
Run through this checklist before your first quarterly submission, and you will not miss anything HMRC expects.
Related: see MTD-compatible software for tradespeople for practical next steps.
Record | What to capture |
|---|---|
Sales and income | Every job, invoice and payment received |
Expenses | Materials, fuel, tools, subcontractors, insurance, PPE |
VAT | VAT charged on sales and paid on purchases, if registered |
Bank transactions | All business bank movements, matched to your records |
CIS deductions | Gross contract, the 20% or 30% deduction and the net amount |
Other income | Bank interest and anything else you need to declare |
Can I still use spreadsheets for MTD ITSA?
Yes, but only with bridging software that connects your spreadsheet to HMRC. It is a workable stopgap and you still input everything by hand. A digital record-keeping system does the same work automatically, which is why it is the better long-term option once you are in scope.
Many traders in a single trade find keeping it simple works best. When your records, invoices and payments all hang together, you can start free in 30 seconds and stay compliant from the first job.
FAQs
When does MTD ITSA start and who does it apply to?
It starts on 6 April 2026 for sole traders and landlords with qualifying income over £50,000, then £30,000 from April 2027 and £20,000 from April 2028. If you are above the threshold you must keep digital records and file quarterly updates.
What records do I need to keep digitally?
All sales and income, all business expenses, bank transactions, VAT if you are registered, and any CIS deductions if you work in construction. Keep them in HMRC-recognised software rather than a loose spreadsheet.
Worth pairing this with our guide to MTD penalties for late filing.
Do I need to be VAT registered for MTD ITSA?
No. MTD ITSA and VAT are separate schemes. You register for VAT only once your taxable turnover passes the £90,000 threshold in a rolling 12-month period. See gov.uk on VAT registration.
Can I still use spreadsheets?
Yes, as long as you pair them with bridging software that sends your figures to HMRC. It is a reasonable short-term fix, though most traders find that proper record-keeping software takes less effort.
How do I get help setting up my records?
Start free with InvoiceAdept and follow the step-by-step Making Tax Digital guide. When invoicing, payments and records live in one place, most of the setup work disappears.
The bottom line
MTD ITSA arrives for every sole trader above £50,000 in 2026, then £30,000 and £20,000 in the years after. The traders who set up clean digital records now will find each quarterly update quick and stress-free, and you can also list your business in our free builders trade directory. InvoiceAdept handles the record-keeping, invoicing and payments in one place, free, so you are compliant from the very first customer. Start free in 30 seconds →
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