Who Needs to Use Making Tax Digital for Income Tax?

Who this guide is for

This guide is for sole traders, freelancers, self-employed people and landlords who want to know whether Making Tax Digital for Income Tax will apply to them.

It is especially useful if you have more than one income source, such as self-employment and rental income.

What is MTD for Income Tax?

MTD for Income Tax is part of HMRC's Making Tax Digital programme.

It changes how affected sole traders and landlords keep records and report income. Instead of relying mainly on one annual Self Assessment process, affected taxpayers will keep digital records and send quarterly updates through compatible software, followed by a final declaration.

Who is affected?

MTD for Income Tax is being introduced in stages:

These thresholds are based on qualifying income, not profit.

What is qualifying income?

Qualifying income generally means gross income from:

• self-employment
• sole trader work
• freelancing
• property income

It is income before deducting expenses.

If you have more than one qualifying source, the income may need to be added together. For example, someone with self-employment income and rental income may need to consider both.

What income is not included?

Employment income taxed through PAYE is not normally qualifying income for MTD for Income Tax.

For example, if you have a salary from employment and a smaller self-employed side income, the PAYE salary is not added to the qualifying income figure for MTD.

However, your full tax position still matters for Self Assessment.

What will affected people need to do?

If MTD for Income Tax applies, you will need to:

• keep digital records
• use compatible software
• send quarterly updates to HMRC
• make a final declaration
• keep records updated during the year
• work with your accountant if they manage submissions for you

This is a major shift for people who currently prepare records only once a year.

Practical example

In 2024/25, Maria had gross self-employment income of £42,000 and gross rental income of £11,000. Eligibility also depends on the applicable exemptions.

Her combined qualifying income is £53,000 before expenses. Based on the staged thresholds, she may be within the first MTD for Income Tax group from April 2026.

Her employment income, if any, would not be included in qualifying income, but self-employment and property income need to be considered.

Common mistakes

A common mistake is checking profit instead of gross income. MTD thresholds are based on qualifying income before expenses.

Another mistake is looking at each income source separately. In some cases, qualifying sources need to be combined.

Many people also wait for HMRC letters before preparing. Even if your start date is later, moving to cleaner digital records early can make the transition easier.

What to do next

To prepare:

1. Add up your gross self-employment and property income.
2. Check which threshold and start date may apply.
3. Review your current record-keeping.
4. Choose compatible software.
5. Speak to your accountant before the first reporting period.
6. Keep Self Assessment deadlines in mind during the transition.