Making Tax Digital for Sole Traders
As an individual with self-employment income and/or rental income in the UK, you may have read about MTD for Income Tax.
This April 2026 will be the first month for some individuals to start following MTD for Income tax rules.
At the moment, it will only be compulsory for individuals with qualifying income over £50,000 during tax year 2024/25. If your self-employment turnover and/or rental turnover declared in your tax return for tax year 2024/25 was over £50,000, then you will have to start using MTD compliant software for digital records and sending quarterly updates to HMRC through said software.
For individuals who declared a lower amount of self-employment and/or rental income, this is voluntary. Of course, it will become mandatory in stages:
From 6 April 2026 for those with self-employment income and/or rental income of over £50,000 in tax year 2024/25
From 6 April 2027 for those with self-employment income and/or rental income of £30,000 or over, and
From 6 April 2028 for those with self-employment income and/or rental income of £20,000 or over.
At KRA Accountancy Services Ltd, we will be working with Xero to keep digital records and submit your quarterly updates, as well as preparing a single annual Tax Return that will align with the previously submitted updates.
You may already have a system in place for your business accounting and financial record-keeping (excel, other accounting software, none).
However, now is the time to change.
Through Xero, you will be able to access your information in real time, connect your business bank account, and manage the financial part of your business digitally.
You will be invited to use Xero
Connect your bank account
You can raise invoices and send them directly to your clients from Xero
You can sign up to payment services such as Stripe, GoCardless, etc (subject to their own fees) through Xero
You can connect your selling platform such as Shopify or others
You can upload your expenses receipts and invoices directly to Xero (or send them to me and I will do this for you)
You can keep track of your accounts on a monthly basis
I can set up your business account in Xero, manage it as your tax advisor for self-assessment and MTD for income tax and invite you as User with all permissions so there is no limit to what you can do therein.
Timeline
All through March 2026, I will be contacting you, explaining through this letter how things will work, doing client acceptance tasks (agent authorisation, adding you to my Agent Service Account, etc), preparing your new Engagement Letter and preparing your new Fee Schedule.
I will open and set up your Xero account.
We will have all of March 2026 to connect banks and start working (I will get used to your transactions during this month).
If you wish to upload information from 1 April 2025 up to 28 February 2026, I will need CSV files of your bank statements. There is an option in Xero to link the bank feed retroactively – how far back you can go depends on what bank you use (chargeable at hourly rate).
We will be ready to start your MTD journey from 1st April 2026!
Services and fees
March 2026 fee - £60
Xero account and monthly accounting – from £30 per month
Quarterly updates using Xero – from £150 per quarterly submission
Annual Self-Assessment tax return – £200
Option to go retroactively charged per hour (£45 per hour) – this would be applicable if you would like to input all your 2025/26 information into Xero – but you do not have to, the 2025/26 tax return is due as normal
The fees per annum would be £1,160 ( not counting the March fee or per hourly fees). I charge my fees on a monthly prorated basis through automated invoicing and you will need to sign up to pay via direct debit (GoCardless). The monthly amount is £96.67, payable within 7 days of receiving each invoice. I will start issuing these monthly automated invoices from April 2026. March 2026 will be a one-off invoice, including March fee and any per hourly costs.