Do Sole Traders Need Quarterly Tax Returns?

A taxi driver with a busy summer, a consultant juggling client work and a landlord collecting rent may all be asking the same question: do sole traders need quarterly tax returns? The short answer is no, not in the way many people fear. Most sole traders still have an annual tax responsibility, but some will also need to send quarterly income and expense updates to HMRC under Making Tax Digital for Income Tax.

Those updates are not four separate tax returns and they do not usually mean paying tax four times a year. They are part of a move towards digital recordkeeping. Knowing whether the rules apply to you now, later or not at all can save a great deal of stress.

Do sole traders need quarterly tax returns under MTD?

From 6 April 2026, Making Tax Digital for Income Tax applies to sole traders and landlords whose combined qualifying income from self-employment and property was more than £50,000 in the 2024-25 tax year. If you are within scope, you must keep digital records and use compatible software to send quarterly updates to HMRC.

The scheme expands from 6 April 2027 to people with qualifying income above £30,000. Further expansion has been proposed for people earning above £20,000, but you should check the confirmed rules nearer the time rather than make plans around an unconfirmed start date.

Qualifying income means your gross income before expenses from sole trading and property. It is not your profit and it is not based on your salary, dividends, savings or pension. For example, a self-employed therapist with £38,000 of business income and rental income of £16,000 has qualifying income of £54,000. Even if their allowable expenses reduce their eventual taxable profit substantially, they fall within the first MTD threshold.

If your combined gross self-employment and property income is £50,000 or less, you will generally continue with the usual annual Self Assessment process for now. This can change as your income changes, so it is sensible to review the position after each tax year, especially if you run a growing business or have started letting out a property.

Quarterly updates are not quarterly tax bills

The phrase “quarterly tax return” is understandable, but it can be misleading. A quarterly update gives HMRC a digital summary of your business or property income and expenses for that period. It does not finalise your tax position.

You will normally send four updates across the tax year. The information comes from the digital records you have kept as you trade, such as sales, rent received, business costs and allowable property expenses. The update is designed to keep your records current, rather than make you rebuild a year’s paperwork every January.

At the end of the tax year, you will still need to finalise the information. This is when adjustments can be made for matters that may not appear in day-to-day bookkeeping, such as capital allowances, private-use adjustments, losses carried forward or accounting adjustments. You will also make a final declaration covering your wider tax position, including other relevant income.

That final declaration is the point at which the annual tax position is confirmed. Quarterly updates are therefore a reporting requirement, not four separate annual returns.

When will tax actually be due?

For most sole traders, the familiar payment dates remain central. Any balancing payment for a tax year is normally due by 31 January following the end of that tax year. Some taxpayers must also make payments on account, usually by 31 January and 31 July, towards the following year’s bill.

Making Tax Digital does not automatically create a tax bill every quarter. However, submitting regular updates can give you a clearer view of estimated profits during the year. Used properly, this can make it easier to put money aside rather than face a difficult January surprise.

There is a trade-off. More frequent recordkeeping means a little more discipline during the year, but it can remove the panic of sorting through twelve months of bank statements and receipts at the last minute.

What records must a sole trader keep?

If MTD for Income Tax applies, you need digital records of your business or property transactions. In practical terms, that means recording income and expenses in compatible accounting software, or using a spreadsheet with suitable software to make the required submission where appropriate.

A separate business bank account is not compulsory for every sole trader, but it often makes recordkeeping much simpler. When personal and business spending are mixed together, it takes longer to identify allowable costs and increases the risk of missing an expense or claiming one incorrectly.

The strongest approach is to record transactions regularly. A tradesperson might upload fuel, materials and tool receipts each week. A freelance designer might categorise software subscriptions and client payments as they occur. A landlord might record rent received, agent fees, repairs and insurance each month. Small, regular tasks are much easier to manage than a large annual catch-up.

Keep evidence behind your entries as well. Digital copies of invoices, receipts and statements make it far easier to answer questions, correct an error and support a claim if HMRC asks for clarification.

The quarterly update timetable

The standard tax-year quarters run from 6 April to 5 July, 6 July to 5 October, 6 October to 5 January and 6 January to 5 April. Each update is generally due one month after the relevant period ends.

That means your first submission can arrive sooner than expected if you leave your digital setup until the last minute. It is worth choosing your software, connecting your bank feeds where useful and agreeing who will maintain the records well before your first quarterly deadline.

You do not need to wait until the deadline to submit. Completing the work shortly after each quarter ends gives time to check unusual transactions, chase missing receipts and deal with any software queries calmly.

What if you have more than one income source?

This is where sole traders and landlords need to take particular care. Your qualifying income is calculated by adding together gross income from all relevant self-employment businesses and property income. It is not assessed business by business.

For instance, a delivery driver earning £32,000 in gross trading income and receiving £21,000 in gross rental income is over the £50,000 threshold. The fact that each individual source is below £50,000 does not keep them outside the rules.

Employment income does not count towards the MTD qualifying-income threshold, but it may still need to be included in your end-of-year declaration where relevant. The same applies to other taxable income. This is why it is helpful to view your tax position as a whole, rather than treating each income stream in isolation.

Are there exemptions from digital reporting?

HMRC recognises that digital reporting will not be practical for everyone. An exemption may be available where it is not reasonably practicable to use digital tools because of age, disability, remoteness of location or another valid reason, including religious beliefs that prevent the use of electronic communications.

An exemption is not automatic simply because you prefer paper records or feel unfamiliar with software. You should discuss your circumstances with HMRC and obtain confirmation before assuming that you do not need to comply.

For many people, a little initial support is enough to make the process manageable. The right setup should feel simple: records are captured as you go, deadlines are monitored and you have a real person to ask when something does not look right.

How to prepare without disrupting your business

Start by finding your gross self-employment and property income on your latest tax return. If you are near the threshold, do not rely on profit figures or a rough estimate. Check the income totals carefully, including every qualifying property and business source.

Next, look at how you currently keep records. If it is mainly paper receipts, a personal bank account and a spreadsheet updated once a year, moving to a regular digital process will take some planning. If you already use accounting software and reconcile transactions monthly, the change may be far less dramatic.

Finally, decide who is responsible for each task. You may enter transactions yourself while an accountant checks the records, handles adjustments and makes submissions. Or you may prefer ongoing support that takes care of everything, leaving you free to focus on clients, tenants and day-to-day work.

At Accountancy N Tax Services, we help sole traders and landlords make the move in a calm, practical way – from digital setup and recordkeeping to deadline management and HMRC submissions. A free, no-obligation consultation can clarify whether quarterly updates apply to you and what you need to do next. Getting organised early is the simplest way to keep your tax reporting stress-free while your business keeps moving.