Making Tax Digital for Income Tax with AI: a sole trader's week-by-week setup

Last checked: 16 October 2026

This guide covers process and timing only: who needs MTD quarterly updates, when they're due, how to sign up, and a weekly checklist to get ready. For which software to use, see our bookkeeping page and pick the tool. AI helps you sort records and check totals, but it doesn't send anything to HMRC. Your compatible software does that.

Do you need it, and from when?

You need Making Tax Digital (MTD) for Income Tax if you're a sole trader or landlord registered for Self Assessment, with self-employment or property income, and your qualifying income is over the threshold. Qualifying income means your total self-employment and property income before expenses (turnover).

You still need to submit a Self Assessment return for the tax year before you start. HMRC checks each return and writes to you if you're over the threshold. If you don't get a letter, it's still your responsibility to check. Sources: GOV.UK: Find out if and when you need to use MTD for Income Tax (updated 26 March 2026, checked 16 October 2026) and GOV.UK: Sign up (checked 16 October 2026).

Exemptions: for example, you may be exempt if you're digitally excluded. If you're not exempt automatically, you apply by phoning or writing to HMRC. HMRC aims to reply within 28 calendar days. If you'll need MTD from 6 April 2027, you can apply now (GOV.UK: Apply for an exemption, updated 17 August 2026, checked 16 October 2026).

MTD quarterly update deadlines

Each update is a summary of your income and expense totals, not a tax return. Your software builds it from your digital records. Each update runs from the start of the tax year to the end of the period, so you can correct earlier records without resending older updates. You must still send an update if you had no income or expenses in that period.

• You can send an update any time between the end of the period and the deadline.
• If you don't expect any more transactions, you can send it up to 10 days early.
• You can't change your update period type for a tax year once you've sent an update.
• Penalties: HMRC won't apply penalty points for late quarterly updates in the 2026 to 2027 tax year. After that, each late update earns a point, and 4 points brings a £200 penalty. Points still apply to late tax returns.
• Source: GOV.UK: Send quarterly updates (checked 16 October 2026).

The setup sequence

1. Check if and when you need MTD, and whether you could be exempt (links above).
2. Choose your software before you sign up. GOV.UK says you should choose your software first. It must be able to:

- keep digital records of your self-employment and property income and expenses - send quarterly updates - submit your tax return - work with your accounting period

Spreadsheet users can use "bridging" software. Use HMRC's software finder tool. HMRC does not recommend any product (GOV.UK: Choose the right software, updated 13 July 2026, checked 16 October 2026). Then pick the tool.

1. Sign up with the same user ID and password as your Self Assessment account. You may need to prove your identity with a phone app and your passport or driving licence. Have these ready:

- your business name (as used on invoices) - your business address - your trade - your start date, if within the last 2 tax years

Also check that every income source is listed. You must have submitted a return in the last 2 years. If you'll need MTD from April 2027, you can volunteer now. HMRC says that from September 2026 it will start to sign up people who need MTD for 2026 to 2027 and haven't signed themselves up (GOV.UK: Sign up, updated 13 October 2026, checked 16 October 2026).

1. Keep digital records, then send your first quarterly update by its deadline.

Week-by-week checklist (for a 6 April 2027 start)

• Week 1:

- Find your 2025 to 2026 turnover from self-employment and property, and check it against the £30,000 threshold. - Run HMRC's checker. - Check the exemption guidance.

• Week 2:

- List your income sources and decide between standard and calendar update periods. - Use calendar periods only if your accounts run from 1 April to 31 March.

• Week 3:

- Use HMRC's finder to shortlist compatible software, and pick the tool. - Check that it supports your update period.

• Week 4:

- Collect your sign-up details and check that you can sign in to your HMRC account. - Have your ID ready for the identity check.

• Week 5:

- Sign up, either voluntarily now or before 6 April 2027. - Turn the AI prompt below into a monthly habit for tidying your records.

• Monthly from April 2027:

- Categorise transactions. - Before each deadline, check the running totals and send the update.

Prompt 1: sort transactions into Self Assessment categories

GOV.UK says MTD uses the same income and expense categories as Self Assessment (checked 16 October 2026, quarterly updates page). [Copy] button on this block (required).

I'm a UK sole trader. Below are my bank transactions for [MONTH] (no account numbers or names).
Put each one into a table: date | description | amount | income or expense | suggested Self Assessment category | confidence (high/low).
Flag anything personal, unclear or possibly split between business and personal, and ask me about it. Don't invent any amounts.
[paste transactions]

Example output (dummy data): "12 Sep | Screwfix | £84.20 | expense | cost of goods / materials (suggested) | high" and "15 Sep | Amazon | £29.99 | expense | unclear: business or personal? | low". Always use the category names your software shows.

Prompt 2: check a quarterly update before you send it

[Copy] button on this block (required).

Here are my MTD running totals. Last update (6 April to [END DATE]): income £[a], expenses £[b].
This period's totals from my records: income £[c], expenses £[d].
My software now shows year-to-date income £[e] and expenses £[f].
Check whether a + c = e and b + d = f. Show the sums. If they don't match, list likely causes (missing transaction, double entry, wrong period). Don't change my figures.

Example output (dummy data): "Income: £4,200 + £5,250 = £9,450, which matches your software. Expenses: £610 + £845 = £1,455, but your software shows £1,540. That's a difference of £85. Look for a missing or duplicated expense of about £85."

Check every number (never skip this). Check the AI's sums against your software and bank statements before you send. Only your software submits the update, and you're responsible for the figures.

Next steps

• Pick the tool for your digital records.
• See the latest tool and price checks: /updates.

Last checked: 16 October 2026. This is general guidance, not tax advice.