Benjamin Dyer, Founder and CEO of Powered Now, provides a guide to ‘Making Tax Digital’ – a new way many sole traders may need to use to report tax and income digitally.
Let’s be honest, most of us didn’t get into plumbing and heating because we love admin and paperwork.
Despite this, Making Tax Digital for Income Tax (MTD IT) is on the horizon, which will revolutionise the way plumbers and heating installers report on their earnings.
Coming into force from April 2026, the changes will mandate all self-employed, non-VAT registered sole traders with an income of over £50,000 per year to report on tax and income digitally.
Ultimately, this means that glove boxes full of receipts, pens and paper will no longer be enough to comply with HMRC’s updated rules. However, the changes don’t have to cause any headaches, and with the correct tools, MTD IT can be key in streamlining your business.
What is MTD IT
Digital tax reporting isn’t new, with countries like Italy, Estonia and Spain having already rolled out their own versions of the scheme.
In essence, MTD IT aims to modernise and simplify the UK’s existing tax system.
From April onwards, tax reporting will be completed through HMRC via four quarterly submissions on earnings. Importantly, this will still require only one annual tax payment, which will go unchanged despite MTD IT coming into force.
The threshold for MTD IT will expand to include non-VAT registered businesses with annual earnings of £50,000. This means that a significant number of plumbing and heating businesses operating as sole traders will be brought into scope.
Across the UK, more than 850,000 sole traders are expected to be affected from April 2026 alone, with many more to follow as the threshold is expected to be lowered in the years after.
Key dates include:
– 6th April 2026 – Non-VAT registered sole traders earning over £50,000 per year
– 6th April 2027 – Non-VAT registered sole traders earning over £30,000 per year
– 6th April 2028 – Non-VAT registered sole traders earning over £20,000 per year
By 2028, over 2.9 million sole traders are expected to be impacted across the UK’s trades. Therefore, there’s never been a better time to get ahead of MTD IT, even if April’s changes don’t apply to you.
What changes to expect?
Whilst MTD IT is being introduced primarily to streamline the tax return process, naturally, it will require some rethinking – especially for those that are still reliant on spreadsheets, paper and pen.
The most important changes to note include:
Shifting all job and cost records online
From April onwards, all income and expenses will need to be recorded digitally using HMRC-recognised software and tools. Handwritten job notes, paper invoices and receipts will no longer be sufficient.
Everything from subcontractor, materials, tools and fuel costs will all need to be recorded digitally.
Keeping records up to date throughout the year
Whilst the one annual tax payment remains unchanged, businesses and sole traders will be required to submit quarterly updates to HMRC, summarising both expenses and income. This ensures that heating and plumbing engineers will now need to stay on top of records year-round.
Opting for software which fits the way your business works
MTD IT requires the use of HMRC-recognised software. Whilst few tools are tailored to the specific needs of the trades, Powered Now is both recognised by HMRC and designed to help the trades juggle jobs, invoices and records in one place. By removing the need for multiple, disconnected apps, tradespeople can also benefit from reduced operational costs.
How to get MTD IT-ready?
Small changes and habits can make a world of difference in the approach to MTD IT, for example, regularly monitoring outgoings and raising invoices promptly through a single platform.
Clearly separating personal and business expenditure is also a wise step. By having separate bank accounts, cards and statements, the likelihood of time-consuming, costly errors is reduced and can make digital record-keeping much simpler in the long term.
Overall, a ‘little but often’ approach to admin and bookkeeping is always advised, especially in the approach to MTD IT. Keeping track of supplier invoices, outgoings and sales throughout the year can save hours of guesswork once tax reports are due on a quarterly basis, in line with MTD IT changes.
MTD IT is yet another way that the tax system is becoming more and more digitalised. Whilst it may feel like an extra burden in the first instance, it is designed to reduce errors, make cash flow easier to manage, and to make tax reporting simpler over time.
Image: Powered Now
