Quick Answer
If your self-employment and rental income added up to more than £50,000 in 2024 to 2025, you are inside MTD Phase 2 from 6 April 2026. That means digital records, four quarterly updates a year, and a final declaration. This free pack gives you Google Sheets and Excel templates set up exactly the way HMRC wants the numbers grouped, so you can keep clean records now and bolt on MTD-compatible software when you are ready.
Table of Contents
Download the MTD Phase 2 Pack
I built this pack for the sole traders I work with at TrainAR and at the Heating and Plumbing businesses I came up through. Most of them are not running fancy accounting software. They are running paper diaries, the back of receipts, and one big spreadsheet at the end of the year. From 6 April 2026, that approach stops working. HMRC wants digital records, kept as you go, in categories that match the quarterly update.
The pack covers the three things you actually need: an income and expense tracker, a quarterly summary sheet that totals your categories ready for the update, and a one-page MTD compliance checklist so you know nothing is missed.
Google Sheets & Excel Compatible
Open straight in Excel or upload to Google Drive and open in Sheets. Formulas carry over.
MTD Income & Expense Tracker (.xlsx)
Daily entry sheet for income and expenses, pre-coded to HMRC's quarterly update categories. Auto-totals by quarter. Works in Excel and Google Sheets.
Download Tracker (.xlsx)Quarterly Summary & Checklist (.xlsx)
A summary tab that takes your tracker totals and lays them out in the exact order of the HMRC quarterly update. Includes a printable MTD compliance checklist.
Download Summary (.xlsx)How to open in Google Sheets
Download the .xlsx files above. In Google Drive, click "New" then "File upload" and select the file. Right-click the uploaded file and choose "Open with Google Sheets". All the formulas work the same way. Pin the file to your sidebar and update it after every job, not at the end of the quarter.
What MTD Phase 2 Actually Requires
MTD Phase 2 is the second stage of Making Tax Digital. The first stage covered VAT. This one covers Income Tax Self Assessment for sole traders and landlords. It is the biggest change to self-employed tax admin in a generation.
From 6 April 2026, if your combined gross income from self-employment and UK rental property was over £50,000 in the 2024 to 2025 tax year, you are in. That figure is your turnover, not your profit. It is before the trading allowance and before any expenses. A lot of trades businesses are going to be caught who do not expect to be.
The quarterly updates are submissions of cumulative totals by category. They are not mini tax returns. You will not be claiming reliefs or finalising figures every three months. You are simply giving HMRC a running total of income and expenses by category, fed from your digital records. The final declaration in January replaces the old Self Assessment return and is where you confirm the year-end position, claim allowances, and pay the bill.
Two things matter here. First, the records must be digital from the point of entry. A paper cashbook typed up at the end of the quarter does not meet the rules. You have to capture the data in the spreadsheet (or in software) as transactions happen. Second, the figures you send to HMRC have to come from those digital records. There must be a digital link, what HMRC call "digital functional compatibility", between your records and the software you use to file. Bridging tools exist that connect a spreadsheet to HMRC, but the chain has to be unbroken.
If you are not sure whether you are in scope, our deep dive on MTD Phase 2 penalties walks through the worked examples. If you are using Xero already and want to know how to set it up properly, our Xero setup walkthrough covers the full configuration.
What's Inside the Pack
The pack has two spreadsheets and a one-page checklist. Each one is laid out in HMRC's categories so the numbers you record are ready to drop straight into a quarterly update.
Sheet 1: Daily Income Log
One row per job, deposit, or payment received. Columns for date, customer name, job reference, invoice number, gross amount, VAT (if registered), and net amount. The Customer column lets you filter by client when you are reconciling. The total row auto-sums by quarter (Q1 = 6 April to 5 July, Q2 = 6 July to 5 October, and so on).
Sheet 2: Daily Expense Log
One row per expense. Date, supplier, description, category, gross, VAT, and net columns. The category dropdown matches HMRC's quarterly update categories (more on those below). Materials at Toolstation goes in cost of goods. Diesel for the van goes in motor expenses. Phone bill goes in admin. Get the category right at the point of entry and the quarterly summary builds itself.
Sheet 3: Quarterly Summary
The summary tab pulls totals from the Income and Expense logs and lays them out by quarter and by HMRC category. The column order matches the quarterly update form, so when the time comes you read the numbers off the screen and type them into your MTD-compatible software. If you are using a bridging tool, you point the tool at this tab.
Sheet 4: MTD Compliance Checklist
A one-page printable checklist covering the things you must have in place: HMRC sign-up done, software chosen, digital records in place from 6 April 2026, quarterly update dates in the calendar, retention rules understood (six years for self-employment records). Pin it on the wall above the desk so you can tick off each item.
The pack is not a replacement for proper MTD-compatible software. It is a halfway house. It gets you keeping the right data in the right shape now, so that when you do pick a software product you are not migrating from a chaotic paper system. You are migrating from a tidy spreadsheet, which any reputable accounting tool can import in minutes.
How to Use the Templates
The templates are built to be used a few minutes at a time, not in one big session at the end of the quarter. The whole point of MTD is that you keep records as you go.
- Fill in your business details: Open the tracker and add your business name, your Unique Taxpayer Reference (UTR), and the tax year you are recording. Set the VAT registered toggle in the header to yes or no. If you are not VAT registered, the VAT columns will hide themselves.
- Add every income line as it happens: When a customer pays you, log it. Date, customer name, the job reference if you use one, the invoice number, and the gross amount. The net and VAT columns calculate automatically if you are VAT registered. Cash jobs, card payments, bank transfers. All of it goes in the same sheet.
- Add every expense the same day, where possible: Photograph the receipt with your phone, then enter the line. The category dropdown matters. Diesel and van service costs go in motor expenses. Materials and consumables you fitted on a job go in cost of goods. Phone, broadband, accounting fees go in admin. Tools that last more than a year are capital, not expense.
- Reconcile to your bank statement weekly: Once a week, sit down with your bank statement and tick off every transaction against your tracker. This is the single most important habit you can build. It catches missing entries while they are still fresh and stops anything sliding into the next quarter.
- Check the quarterly summary tab once a month: Open the summary tab. The numbers should look about right. If your motor expenses for the month say £15,000, something is wrong. Running this check once a month catches data entry errors before they become a problem.
- Submit the quarterly update by the deadline: Quarter end dates are 5 July, 5 October, 5 January, and 5 April. The submission deadlines are 7 August, 7 November, 7 February, and 7 May. Read the totals off the summary tab and enter them into your MTD-compatible software, or use a bridging tool to send them directly from the spreadsheet.
- Back up the file every Friday: Save a dated copy of the tracker to Google Drive or OneDrive every Friday. A two-minute habit. If your laptop dies the week before the quarterly deadline, you do not want to be rebuilding three months of records from receipts.
- Roll into the final declaration in January: The final declaration is due by 31 January following the end of the tax year. It is the new version of the Self Assessment return. Your end-of-year totals from the summary tab feed into it, alongside any adjustments your accountant makes for capital allowances, private use, and so on.
One tracker per tax year
Start a fresh copy of the tracker every 6 April. Rename it "MTD-2026-27.xlsx" or similar. Mixing tax years in one file is a recipe for confusion at the final declaration. Keep the previous year's file in a "Closed years" folder and do not touch it.
HMRC's Expense Categories Explained
The category dropdown in the expense log is the bit that most sole traders trip up on. HMRC has a fixed set of categories for the quarterly update. Get the category right at the point of entry and there is no clean-up later.
The main categories you'll use
Cost of goods sold: Materials, fittings, consumables that go on the job. Copper pipe, cable, sand, cement, tiles.
Subcontractor and labour costs: Payments to subcontractors (CIS-deducted), wages, employer NI, pension contributions for staff.
Motor expenses: Diesel, van servicing, MOT, road tax, insurance, vehicle finance interest. Pro-rata for private use if you are not using the simplified mileage method.
Premises and utility costs: Workshop rent, business rates, utility bills, business insurance covering the premises.
Office, communications, training: Phone bills, broadband for the business, accounting software, trade body subscriptions, training courses.
Bank, finance and professional fees: Accountant fees, solicitor fees, bank charges, business loan interest.
Other allowable business expenses: Anything wholly and exclusively for the business that does not fit the other boxes.
The categories above are simplified. The full HMRC schedule has more granularity around capital items, depreciation, and disallowed expenses. The template uses the same field names HMRC uses on the quarterly update form, so when you switch to MTD-compatible software the mapping is one-to-one.
One thing worth flagging. The trading allowance and the property allowance are not deducted at the quarterly stage. You record gross income, you record actual expenses, and the allowances get applied at the final declaration. Do not net them off in the tracker. If you do, your quarterly figures will be wrong and the final declaration will not reconcile.
Avoiding Penalty Points
HMRC is bringing in a new points-based penalty system alongside MTD Phase 2. The structure is simple. Miss a quarterly deadline, you get one point. Reach four points and HMRC issues a £200 fixed penalty. Each missed deadline after that is another £200.
The 2026 to 2027 soft landing
For the first tax year of Phase 2, HMRC has confirmed a soft landing. No financial penalty for late quarterly updates during 2026 to 2027. Points may still be recorded, and late payment penalties still apply. The soft landing also does not cover the final declaration in January 2028. From 2027 to 2028, the full regime is in force.
The soft landing is a kindness, not a free pass. The habit you build in 2026 to 2027 is the habit you carry into the year when the points start mattering. If you treat the first year as optional, you will be the one trying to learn the system the week before the first chargeable deadline in August 2027.
The points clock also resets. If you stay clean for two years (24 months for quarterly filers), accumulated points are wiped. Miss one, then file the next four on time, and the point sits there for the full two years. It is structured to reward consistency, not heroic last-minute filing.
Late payment is a separate penalty
Penalty points cover late filing. Late payment of the tax you owe attracts a separate set of charges. A 3% surcharge if the tax is more than 15 days late, another 3% at 30 days, and 10% annual interest from then on. The quarterly updates do not require payment. The tax bill is calculated and paid at the final declaration in January. Miss that and you pay the late payment charges on top of any filing points.
When the Spreadsheets Stop Being Enough
I want to be honest about what this pack is for. It is a starter kit, not a long-term solution. The spreadsheets meet the MTD digital records rule, and you can submit the quarterly updates by reading the figures off the summary tab and typing them into a bridging tool. That works for a one-person operation with a manageable number of transactions.
If you are doing more than around fifty transactions a month, or you have more than one employee, or you are VAT registered, dedicated accounting software is going to pay for itself fast. Xero, FreeAgent, and QuickBooks all have proper MTD ITSA support built in. Xero costs about £18 a month for the starter plan. FreeAgent is free if you bank with NatWest, Royal Bank of Scotland, Ulster Bank, or Mettle, otherwise around £19 a month. QuickBooks runs from £12 a month for the sole trader plan.
When to make the jump
You will know it is time when the weekly reconciliation starts taking more than an hour, or when you stop doing it, or when you find yourself maintaining the same data in two places. The whole point of MTD-compatible software is that the bank feed pulls in transactions automatically, you categorise them with one click, and the quarterly update fires off with no manual typing. Our Xero vs QuickBooks vs Sage comparison walks through the trades-specific pros and cons of each.
One thing the spreadsheet does well is teach you what the software is doing. If you spend a tax year manually categorising every expense into HMRC's categories, you understand the structure. When you move to Xero, you are not blindly trusting the software. You know what cost of goods is, you know what motor expenses is, and you can spot when the software has miscategorised something. That is worth a lot.
My Verdict
This pack is for the sole trader who is in scope for MTD Phase 2 but is not yet ready to commit to a paid accounting product. It gets you compliant with the digital records rule, it teaches you HMRC's category structure, and it leaves you with clean data when you do upgrade. It is not a tool for a five-person firm with VAT registration and ten subcontractors. For that, you need proper software.
Best for: Sole trader trades on or near the £50,000 threshold who want to get the data discipline right before paying for software.
Time saved: Around two hours a quarter compared to scrambling at the deadline, because the summary tab is always up to date.
Money saved: £200 to £800 a year on accounting fees during the first year, because your records are clean when they hit your accountant.
When to upgrade: When you cross 50 transactions a month, or take on staff, or hit VAT registration. At that point, Xero or FreeAgent will earn back the subscription in saved time within a quarter.
What Sole Traders Are Saying
MTD Phase 2 has been one of the most discussed topics on UK self-employment forums for the last year. The mood is mixed. Some accept it. Some are angry about the cost. A few are quietly pleased that the paper-and-shoebox brigade are finally going to have to tidy up. Here are real comments from the forums where sole traders actually post.
Recommended Videos
If you want to hear MTD explained out loud, these videos cover the same ground from different angles. The first one is the best plain-English overview. The accountant-led explainers are denser but useful if you want to understand the regulatory detail.
Making Tax Digital UK Explained | 2026 Guide for Sole Traders and Landlords
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Making Tax Digital For Income Tax Self Assessment - Everything You Need To Know
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The NEW Tax System Coming in 2026 for Sole Traders and Landlords
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Making Tax Digital Sole Trader Survival Guide
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Making Tax Digital for Income Tax: What Every Sole Trader and Landlord Needs to Do From April 2026
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Making Tax Digital: What Sole Traders Need to Know
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Frequently Asked Questions
A spreadsheet meets the digital records rule, but it does not meet the digital submission rule on its own. You need either MTD-compatible software (Xero, FreeAgent, QuickBooks, Sage and so on) or a bridging tool that connects the spreadsheet to HMRC. Bridging tools cost from around £8 a quarter. The spreadsheet in this pack is built to work with that approach.
Qualifying income is your gross turnover from self-employment plus the gross rental income from UK property. Gross means before any expenses, before the £1,000 trading allowance, and before the £1,000 property allowance. If you have two trades, you add them together. If you have a trade and a rental property, you add those together too. Employment income and dividends do not count.
The first quarter runs from 6 April 2026 to 5 July 2026. The submission deadline is 7 August 2026, so you have just over a month after quarter end to file. Subsequent deadlines fall on 7 November, 7 February, and 7 May. Get those four dates in your phone calendar with a week's reminder.
For the 2026 to 2027 tax year, HMRC has confirmed there will be no financial penalty for late quarterly updates. That covers the four quarterly deadlines. It does not cover the final declaration, which is still due by 31 January 2028 and attracts the usual late-filing penalties. Late payment of tax is also still penalised. Treat the soft landing as practice, not a free pass.
Yes. If you have two distinct trades (say, plumbing and a separate handyman business), HMRC treats them as separate businesses and you submit a separate quarterly update for each. Keep one tracker file per business. The summary tabs are then submitted individually.
No. The trading allowance and any other personal allowances are not deducted at the quarterly stage. You record gross income and actual expenses every quarter. Allowances are applied at the final declaration in January, where you confirm the year-end position.
Not in April 2026. The threshold drops to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. If your income is anywhere near those thresholds, start using this pack now. The discipline of keeping digital records as you go is worth building before HMRC forces it on you.
Yes, if you currently use one. The final declaration replaces the old Self Assessment return, and any accountant who handles your Self Assessment now will handle the final declaration under MTD. Most accountants are also offering to file the quarterly updates on your behalf, though that adds to the fee. Doing the quarters yourself and asking your accountant to handle the final declaration is the typical compromise.
Self-employment records must be kept for at least five years after the 31 January submission deadline for the relevant tax year. So records for the 2026 to 2027 tax year (final declaration due 31 January 2028) must be kept until at least 31 January 2033. Back up the tracker file annually and keep the closed years in a separate folder.
Key Takeaways
- MTD Phase 2 starts 6 April 2026 for sole traders with combined trading and property income over £50,000 in 2024 to 2025.
- Records must be digital from the point of entry. Paper cashbooks typed up later do not qualify.
- Four quarterly updates per year, due 7 August, 7 November, 7 February, and 7 May. Plus a final declaration by 31 January.
- This free pack gives you the spreadsheet structure HMRC expects, ready to be used with a bridging tool or migrated to MTD-compatible software.
- Build the weekly reconciliation habit in 2026 to 2027 while penalties are paused. The habit is what matters when the points start counting in 2027 to 2028.
