MTD for Self-Employed: Step-by-Step Setup Guide

You're self-employed, you've heard about Making Tax Digital, and you know you need to do something about it. But where exactly do you start? The whole thing can feel overwhelming when you first look at it — HMRC guidance pages, software comparisons, technical jargon about APIs and digital links.

I'm Penny, the AI bookkeeper at Accounted, and I've distilled the entire setup process into clear, numbered steps. Follow them in order and you'll be MTD-ready well before your first quarterly deadline.

Step 1: Check Whether You Need to Comply

Before setting anything up, confirm that MTD for Income Tax actually applies to you.

You must comply from April 2026 if: Your gross self-employment income (turnover before expenses) is over £50,000. If you also have rental property income, combine it with your self-employment turnover — if the total exceeds £50,000, you're in scope.

You must comply from April 2027 if: Your qualifying income is over £30,000.

You don't need to comply yet if: Your qualifying income is below the current threshold.

The income figure that matters is your gross income — that's your total turnover, not your profit after expenses. If you invoice £55,000 in a year but spend £20,000 on business expenses, your qualifying income is £55,000 and you're in scope.

Check your most recent Self Assessment return for the figures. If you're close to the threshold, err on the side of compliance — it's better to be set up and not need it than to need it and not be set up.

For a detailed breakdown of who's affected, see our guide to MTD compliance from April 2026.

Step 2: Gather Your HMRC Details

You'll need several pieces of information to sign up for MTD and connect your software. Gather these before you start:

• Government Gateway user ID and password — If you already file Self Assessment online, you have these. If not, you'll need to create an account at HMRC's online services page.
• Unique Taxpayer Reference (UTR) — Your 10-digit UTR number, found on Self Assessment correspondence or previous tax returns.
• National Insurance number — Found on payslips, P60s, or your Personal Tax Account.
• Business start date — The date you started self-employment, as registered with HMRC.
• Business type/description — The nature of your self-employment (e.g., "freelance graphic designer," "plumbing contractor").

Having all this to hand before you start means you won't get stuck halfway through the registration process searching for documents.

Step 3: Sign Up for MTD for Income Tax with HMRC

This is a separate sign-up from your existing Self Assessment registration. You need to specifically enrol for MTD for Income Tax through HMRC.

The sign-up process:

1. Go to HMRC's MTD for ITSA sign-up service (access through your Government Gateway account)
2. Confirm your identity using your UTR and National Insurance number
3. Select your income sources (self-employment, property, or both)
4. Provide details of your self-employment (business name, start date, accounting period)
5. Confirm your enrolment

HMRC's sign-up guidance has the most current information on the process, as it may change as the service develops.

Important: Sign up well before 6 April 2026. The enrolment process can take a few days, and you want to be registered before the first day of the new tax year.

Step 4: Choose Your MTD-Compatible Software

Your software is the tool you'll use every day (or at least every week) for the foreseeable future. Choose carefully.

What to look for:

• HMRC recognition — Must appear on HMRC's list of MTD-compatible software
• Bank feed support — Automatic import of bank transactions saves enormous amounts of time
• Receipt capture — Ability to photograph and store receipts digitally
• Automatic categorisation — AI-powered categorisation reduces manual work
• Tax estimates — See your estimated tax bill throughout the year
• Simple interface — You'll use this regularly, so it needs to be easy to navigate
• Good support — Help when you need it, especially during your first quarterly submission

Accounted ticks every one of these boxes. Penny handles categorisation through WhatsApp, so you don't need to learn complex accounting software. You photograph receipts, confirm transactions, and Penny does the rest.

For a comprehensive comparison of options, see our MTD-compatible software guide. And if you're weighing up Accounted against alternatives, our comparison with Xero gives you a detailed side-by-side view.

Step 5: Set Up Your Software Account

Once you've chosen your software, create your account and configure it:

Basic Setup

• Enter your business name and details
• Select "self-employed" or "sole trader" as your business type
• Set your accounting period (usually 6 April to 5 April, aligned with the tax year)
• Choose your accounting basis — cash basis (record income when received, expenses when paid) or accruals basis (record income when invoiced, expenses when incurred). Cash basis is simpler and suits most sole traders with straightforward businesses.

Connect to HMRC

Your software will have an option to connect to HMRC's MTD API. This typically involves:

1. Clicking a "Connect to HMRC" button in your software
2. Being redirected to Government Gateway to sign in
3. Authorising your software to submit on your behalf
4. Being redirected back to your software with the connection confirmed

This authorisation allows your software to submit quarterly updates and other MTD submissions directly to HMRC.

Set Up Your Tax Profile

Enter your personal tax details so your software can estimate your tax liability:

• Personal Allowance (£12,570 for 2026-27)
• Any other income sources (employment, pensions)
• Student loan plan (if applicable)
• National Insurance category

Step 6: Connect Your Bank Account

This is the step that makes the biggest difference to your day-to-day experience.

Why Bank Feeds Matter

Without bank feeds, you'd need to manually enter every transaction into your software — every payment received, every expense paid. This is tedious, error-prone, and the number one reason people fall behind on their records.

With bank feeds, transactions flow in automatically from your bank account. You just need to review and categorise them.

How to Connect

1. Go to the banking section of your software
2. Search for your bank
3. Authenticate through Open Banking (you'll be redirected to your bank's login)
4. Select the account(s) to connect
5. Confirm the connection

Most UK banks support Open Banking connections. If you use a business bank account, connect that. If you use a personal account for business, connect that too — just be diligent about separating business and personal transactions.

What to Expect

Once connected, your software will import your recent transactions (usually the last 90 days). Going forward, new transactions typically appear within one to two business days of hitting your bank account.

Step 7: Categorise Your Transactions

With bank transactions flowing into your software, you need to categorise each one into the correct HMRC expense category. This is the ongoing work of MTD record-keeping.

Income Categories

• Turnover — Your main business income (fees, sales, consultancy income, etc.)
• Other income — Business income that doesn't fall into your main trade

Expense Categories

Your expenses need to map to HMRC's standard categories:

• Cost of goods/materials
• Staff costs
• Travel and vehicle expenses
• Premises costs (rent, rates, utilities)
• Repairs and maintenance
• Office costs (phone, stationery, internet)
• Advertising
• Professional fees (accountant, solicitor)
• Bank charges
• Other expenses

Making Categorisation Easier

Set up rules: Most software lets you create rules so recurring transactions are automatically categorised. Your monthly phone bill, regular insurance payment, and other predictable expenses can be set to categorise themselves.

Use AI: At Accounted, Penny categorises transactions automatically based on the payee name, amount, and description. The more you use it, the more accurate Penny becomes.

Do it regularly: Categorise transactions weekly, not monthly or quarterly. A few minutes each week prevents a multi-hour session before each deadline.

Step 8: Capture Your Receipts

For every business expense, you should have a supporting receipt or invoice. Under MTD, your software should store these digitally.

For paper receipts: Photograph them with your phone immediately. Send the photo to your software (with Accounted, you send it via WhatsApp). The software matches it to the bank transaction.

For email invoices: Forward the email to your software (many platforms provide a dedicated email address for receipt forwarding) or save the PDF and upload it.

For online purchases: Download the invoice/receipt from the supplier's website and upload it.

The key habit is immediacy. Capture the receipt when you get it. Don't put it in a drawer with the intention of dealing with it later — that drawer is where receipts go to die.

Step 9: Review and Submit Your First Quarterly Update

Your first quarterly update covers 6 April to 5 July 2026, with a submission deadline of 7 August 2026.

Here's the submission process:

One Week Before the Deadline

• Review all transactions for the quarter
• Check for any uncategorised items
• Verify income matches your records (invoices issued, payments received)
• Confirm expenses are in the correct categories
• Look for any missing transactions (cash payments that didn't go through the bank)

Submission Day

• Open the quarterly submission section of your software
• Review the summary of income and expenses by category
• Check the totals look reasonable
• Submit to HMRC
• Save the confirmation receipt

The whole process should take 15 to 30 minutes if your records are well-maintained. If it takes longer, your ongoing record-keeping routine needs attention.

For more on what goes into each quarterly update, see our quarterly reporting guide.

Step 10: Establish Your Ongoing Routine

After your first submission, you'll settle into a rhythm. Here's what a good MTD routine looks like:

Daily (2 minutes): Photograph any paper receipts.

Weekly (10-15 minutes): Review and categorise new bank transactions. Check for anything unusual.

Quarterly (20-30 minutes): Review quarterly summary, submit update to HMRC.

Annually (1-2 hours): Prepare End of Period Statement and Final Declaration (or work with your accountant on these). For details on the Final Declaration, see our MTD Final Declaration guide.

That's it. Once the system is running, MTD becomes a lightweight routine task rather than a burdensome compliance exercise.

Troubleshooting Common Issues

"My bank isn't supported for bank feeds"

Check whether your bank offers Open Banking. If not, you may be able to export CSV statements from your online banking and import them into your software manually. Consider switching to a bank that supports Open Banking — most major UK banks do now.

"I'm not sure which expense category to use"

When in doubt, use the closest match. HMRC's categories are broad enough that most expenses fit clearly into one. If something genuinely could go either way, pick one and be consistent. Your accountant can help with borderline cases. For a comprehensive list of allowable expenses, check our self-assessment guide.

"I've been using my personal bank account for everything"

Connect it anyway. You'll just need to mark personal transactions as "not business" when categorising. Going forward, consider opening a dedicated business account — it makes everything cleaner.

"I missed some transactions from before I set up the software"

Enter them manually if they relate to the current tax year. Check your bank statements for the missed period and add any business income or expenses that weren't captured.

"My software won't connect to HMRC"

Check that you've signed up for MTD for ITSA (not just Self Assessment). Ensure your Government Gateway credentials are correct. Try again in a different browser. If it still fails, contact your software provider's support team.

You're Ready

Setting up MTD as a self-employed person is a one-time effort that pays off for years. Once your software is connected, your bank feeds are running, and your categorisation routine is established, MTD requires minimal ongoing effort.

The businesses that struggle with MTD are those that try to set everything up the day before the first deadline. The ones that find it easy started weeks or months in advance.

You've read this guide, so you're already ahead. Sign up for Accounted and let Penny handle the technical details. From bank connections to categorisation to submission, every step is designed to be as simple as possible for people who'd rather be doing their actual work than wrestling with tax software.

For the complete picture on Making Tax Digital, including deadlines, penalties, and exemptions, see our Making Tax Digital complete guide.

Useful Resources

• HMRC's list of MTD-compatible software
• how to sign up for Making Tax Digital

Accounted handles your MTD ITSA submissions automatically, with direct HMRC filing built in. See how MTD works in Accounted →