Are you ready for Making Tax Digital?
Making Tax Digital for Income Tax: What You Need to Know
If you're a sole trader or landlord, you've probably heard about Making Tax Digital for Income Tax. It's the biggest change to Self-Assessment since 1997, and depending on your income, it could affect you sooner than you think.
We know change can feel unsettling, especially when it comes to tax. That's why we've put together this guide to explain what's happening, who it affects, and most importantly, how we can help you through it.
What is Making Tax Digital?
In simple terms, Making Tax Digital for Income Tax (MTD for Income Tax) changes how sole traders and landlords report their income and expenses to HMRC.
At the moment, you submit one Self-Assessment tax return each year. Under MTD, things work differently. You'll need to:
Keep digital records of your business and property income and expenses
Use MTD-compatible software (like Xero or other HMRC-approved options)
Send quarterly updates to HMRC throughout the year
Submit a final declaration at the end of the tax year
The government says this will modernise the tax system and help businesses stay on top of their tax obligations. Whether that turns out to be true remains to be seen, but either way, it's coming.
Who Needs to Use MTD?
This depends on your qualifying income and when you earn it. Qualifying income is your total gross income from self-employment and property combined (your turnover/sales not your profit). That means income before you take off any expenses or allowances.
What counts as qualifying income
Income from self-employment (your business turnover) and rental income from UK property.
Disguised investment management fees
Income-based carried interest
Income from certain UK land transactions (if they're ongoing sources of income).
What doesn't count
Employment income (PAYE),
Pension income
Dividends
Investment income
Foreign income from self-employment or property (unless you're UK domiciled)
Partnership income doesn't count either, though if you're a partner with other qualifying income, you might still be caught by MTD.
Income from REITs or PAIFs and transition profits from basis period reform are also excluded
When Will My Business Become Eligible?
Here's how HMRC works out when you need to start.
You will need to start using Making Tax Digital:
From 6 April 2026: If your qualifying income on your 2024/25 tax return was over £50,000
From 6 April 2027: If your qualifying income on your 2025/26 tax return was over £30,000
Future years: Eligibility will continue to be based on the last completed tax return. By the end of this Parliament the threshold will drop again to £20,000 but we don't have an exact date yet.
Who doesn't need to worry about this?
You're exempt if:
Your qualifying income is £20,000 or less
You're submitting a tax return as a trustee
You're a Lloyd's member without self-employment or property income
You're submitting a return for someone who has died
You don't have a National Insurance number
You have power of attorney for someone who lacks mental capacity
There are also temporary exemptions for some people, including those claiming qualifying care relief or averaging relief.
What if I want to sign up early?
You can volunteer to join MTD before you have to. Some benefits of doing this:
You'll have more time to get comfortable with the new system
HMRC's MTD Customer Support Team will give you dedicated help
There's a "soft landing" period in 2026/27 where HMRC won't penalise you for late quarterly updates
Just be aware that volunteering means different penalty rules might apply, so it's worth talking to us first. We can work with you to make sure that you don’t incur any penalties under the new system.
The tricky bits
Multiple income sources: If you've got more than one business or rental properties alongside self-employment, all of it gets added together. We'll work this out for you.
For example, if you're self-employed earning £35,000 and also have rental income of £20,000, your total qualifying income is £55,000. That's over the £50,000 threshold for April 2026.Joint property: Own property with someone else? Only your share of the rental income counts. We'll make sure this is calculated properly.
Unusual accounting periods: If your accounting period isn't a standard 12 months, HMRC adjusts the calculation. Don't worry - we'll handle this.
What Happens Next?
If you're close to the threshold or already over it, let's start getting ready. Here's what we'll do:
Work out your qualifying income - we'll look at your recent tax returns and calculate whether you need to join MTD, and when
Sort out your software - we'll recommend the right MTD software for your situation and help you get set up
Handle the registration - we'll sign you up for MTD as your agent and deal with the paperwork
Manage your reporting - we'll submit your quarterly updates and keep everything ticking over
The good news?
Going digital can actually make things easier. With our help, you'll get:
A clearer picture of your tax position throughout the year (no more January surprises)
Fewer errors, because we'll set up automated calculations and keep an eye on them
Less hassle - we'll handle the quarterly submissions while you get on with running your business
Better information to make decisions with
Get in Touch
Got questions about Making Tax Digital? Want to know how it affects your business specifically? Just get in touch.
The earlier we start preparing, the smoother this will be. And honestly, once you're set up, it's not as scary as it sounds!