Making Tax Digital for Income Tax (MTD) for carpenters

On 6 April 2026, the government’s Making Tax Digital for Income Tax will come into effect. This means that many sole traders, including carpenters, will be required to change the way they report their income and expenses. This guide will give you an overview of the scheme and how it will affect carpenters.

What is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax is part of the government’s move to creating a digital tax system. It follows the earlier implementation of Making Tax Digital for VAT, which began in 2019.

The new system is how sole traders and landlords will report their income and expenses to HMRC. The idea is to have real-time digital record keeping.

For the first year, starting 6 April 2026, sole traders and landlords must use it if their annual qualifying income from self-employment and property is over £50,000, based on their 2024/25 tax return. This can be a combination of both, but doesn’t include other income like savings interest or PAYE.

How does it work?

Instead of filing a self-assessment tax return at the end of the tax year, Making Tax Digital requires 4 quarterly updates. The deadlines for each quarter are 7 August, 7 November, 7 February and 7 May.

You then have to file your tax return by 31 January following the end of the tax year.

Each quarterly filing will need to be done using software compatible with Making Tax Digital for Income Tax. You can either do this through a tax agent or on your own. There are many free software options available, so if you only have basic taxes then you should be able to use a free option. People with more complex taxes will likely need to pay for software if they don’t already.

Compatible software will create, store and correct digital records of your self-employment and property income and expenses. Then you need to use that data to send quarterly updates to HMRC.

The changes might seem daunting, but once you have the software set up and integrated correctly then it’s just a matter of making sure you enter the information and check your records are correct.

You should have already been contacted by HMRC if you’re required to start using Making Tax Digital. If you’re unsure, you can check on the government website.

How do these changes affect carpenters?

For carpenters, if your only income comes as a contractor for a limited company and you’re paid using PAYE, you won’t need to register for Making Tax Digital.

If you’re a subcontractor under the Construction Industry Scheme (CIS), then Making Tax Digital will affect you. Your eligibility will be determined based on your total turnover, which is what you earn before any deductions. If that amount was above £50,000 in 2024/25, then you’ll need to start reporting your income and expenses every quarter from April 2026.

This means that as an example, if you bill a customer £7,000 for a job and that amount is made up of labour (£3,000) and materials (£4,000), the total amount is included as your gross income. You won’t be liable for tax on the full amount, but that full amount is what is used to calculate whether you need to report every quarter.

You’ll need to find MTD-compatible software that can deal with tax deductions at source. That will then record the CIS tax you’ve already paid and show you in real time whether you’re due a CIS refund or if you still owe extra tax.

As part of the quarterly process, you’ll need to upload your CIS payment and deduction statements into the accounting software, because you’ll need it as a digital record. HMRC will cross-check your monthly CIS statements with your quarterly MTD statements.

All your expenses need to be reported every quarter as well. If you have paper receipts, they’ll be uploaded into the accounting software and then included in your quarterly statement. A lot of accounting software will allow you to take a photo of your receipt and then get all the information from that receipt.

If you have a workshop, that’s likely to have fixed, recurring costs like rent. You can set up recurring payments with accounting software so that’s added every month. You’ll also have variable costs like bills and other business expenses, which will be different each month.

It might sound like more effort than you’re used to doing, but if you get into the habit of logging income and expenses as it happens, it should mean your tax return will be an easier process at the end of the year.

What are the penalties?

There are no penalties for missing a quarterly update deadline for the 2026/27 tax year. But you’ll still need to keep digital records and send quarterly updates to be able to complete your tax return once the tax year ends. You will still receive a late payment penalty if you don’t pay your tax on time.

After the first year, there will be a points-based penalty system in place if you miss a quarterly update or tax return deadline. So you’d get 1 point for each late submission, up to a maximum of 4. If you get 4 points, then you’ll get a £200 fine. Each subsequent point would accrue another £200.

Late payment penalties are percentage based and calculated depending how late the payment is. It’s important to know that these will still apply in the 2026/27 tax year, even though there are no penalties for missing the quarterly update deadline.

Who is exempt?

There’s a range of exemptions for Making Tax Digital. Some are automatic and others are ones that you need to apply for. They can either be permanent (unless your circumstances change) or temporary.

Automatic exemptions include if your qualifying income is £20,000 or less or if you don’t have a National Insurance number.

You can also be digitally excluded from Making Tax Digital if it’s not reasonable for you to use compatible software to keep digital records, send quarterly updates or submit your tax return.

Reasons for this include your age, health condition or disability stopping you from using a computer, tablet or smartphone to keep digital records or submit them to HMRC.

In some cases you can apply for an exemption if you’re a practising member of a religious society or order whose beliefs are incompatible with using digital communications or keeping digital records, and you do not use a computer, tablet or smartphone for business or personal use.

If you can’t get internet access at home, business or a suitable alternative location, you might also be able to apply for an exemption.

You need to speak to HMRC to learn more about exemptions.

Conclusion

For self-employed carpenters and landlords, these changes don’t only represent a new way to do your taxes, they’re also a new way to manage your business finances.

Submitting quarterly updates and a final declaration might sound like more work than you’re used to, but the system is designed to give you (and the taxman) a real-time view of your taxes. Initially there might be some teething problems, but once you’re set up, a lot of the process will be automated for you anyway.

For now, you need to make sure you have compatible software before the 2026/27 tax year starts.

• Is the £50,000 threshold based on profit or turnover?

  It's based on turnover, which is your gross income.

• How do I calculate income if I am both a landlord and self-employed?

  You have to combine the 2 amounts to calculate your qualifying income.

• Do I have to pay my tax every 3 months now?

  No, you still pay your tax when you usually do. This new system only changes how often you need to report.

• What happens if I miss a quarterly update deadline?

  For 2026/27, there are no penalties. After that, HMRC has a points-based penalty system in which you get 1 point for a late submission. If you get 4 points then you'll be issued with a £200 fine and each subsequent point will earn you another £200 fine.

• Can I still use a spreadsheet?

  You can still use a spreadsheet to calculate your income and expenses. But you'll need to send the information to HMRC using bridging software.

• Is there a free software option provided by HMRC?

  No, there is no HMRC software. You need to use a third party, though there are some free options out there.

• Can I opt out if I'm not good with computers?

  In some cases you can get an exemption, but it depends on your circumstances. You'd need to prove why you need one.

• What if my income drops below the threshold next year?

  If your income drops below the threshold, you'll still need to continue Making Tax Digital for Income Tax reporting for 3 years.

• Do I still need to file a 2025/26 tax return in January 2027?

  Yes, you'll need to file your 2025/26 tax return as usual while you start your quarterly reporting for 2026/27.

• Do I still get my CIS tax refund under MTD?

  Yes, you will. When you submit your quarterly report, you'll see a real-time estimate of your taxes. If you've overpaid via CIS, you'll see your account is in credit during the year.

• Does MTD replace my monthly CIS statements??

  No it doesn't. You just need to record these statements digitally throughout the year, rather than when you do your tax return.

• Does my contractor handle my MTD reporting for me?

  No, this is your responsibility, while your CIS returns are the contractor's responsibility.

• What if I work for multiple contractors?

  You need to combine all of your income, expenses and deductions. This is then sent as a single update each quarter.

• I use a lot of materials. Does the £50,000 threshold apply to my labor-only income?

  No, the threshold is calculated using your turnover. So material costs would be included in that, even though they would then be added as deductions for tax purposes.

• What if I use my workshop for personal expenses?

  HMRC says you can record the expenses for the full amount in each quarterly update, then you can adjust that number to reflect the amount of time you used your workshop for personal use when you submit your final declaration. Your software should make this a simple process.

Written by

Jason Loewenthal

Senior writer

Jason is a writer and editor. He worked as a senior subeditor for Finder for 5 years and in that time became familiar with a wide range of financial products and services. Before that, he worked for Australian Associated Press. He has a BA from Macquarie University in Australia. Jason loves to help other people find new ways to save money. See full bio