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.<\/p>
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. <\/p>
The new system is how sole traders and landlords will report their income and expenses to HMRC.\u202fThe idea is to have real-time digital record keeping.<\/p>
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 \u00a350,000, based on their 2024\/25 tax return.\u202fThis can be a combination of both, but doesn’t include other income like savings interest or PAYE.<\/p>
Instead of filing a self-assessment tax return at the end of the tax year, Making Tax Digital (MTD) requires 4 quarterly updates. The deadlines for each quarter are 7 August, 7 November, 7 February and 7 May. <\/p>
You then have to file your tax return by 31 January following the end of the tax year.<\/p>
Each quarterly filing will need to be done using MTD-compatible software<\/a>. 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. Some software comes built-in to your actual business bank account. Tide<\/a> is one such case that helps you file the 5 submissions each year.<\/p> 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.<\/p> 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.<\/p> 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<\/a>.<\/p> 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. <\/p> If you’re a subcontractor under the Construction Industry Scheme (CIS), then MTD 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 \u00a350,000 in 2024\/25, then you’ll need to start reporting your income and expenses every quarter from April 2026.<\/p> This means that as an example, if you bill a customer \u00a37,000 for a job and that amount is made up of labour (\u00a33,000) and materials (\u00a34,000), 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.<\/p> 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. <\/p> 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.<\/p> 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. <\/p> 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.<\/p> 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.<\/p> 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<\/a> if you don’t pay your tax on time.<\/p> 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 \u00a3200 fine. Each subsequent point would accrue another \u00a3200.<\/p> 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.<\/p>How do these changes affect carpenters?<\/h3>
What are the penalties?<\/h3>
Who is exempt?<\/h3>