Making Tax Digital (MTD) for Income Tax is being phased in from April 2026.
It firstly applies to sole traders and landlords with income over £50,000, who will need to comply with new reporting requirements.
This involves submitting quarterly updates and a final declaration each tax year using MTD compatible software.
In the coming tax years, the threshold will drop, meaning sole traders and landlords with lower qualifying incomes will also be affected.
Qualifying income for MTD purposes is defined as the total gross income (turnover, not profit) from self-employment and UK and foreign property.
This is before any expenses or allowances, including the trading allowance or property allowance, and is the total combined income across all relevant sources.
It is not assessed per business.
For example, if your 2024-2025 tax return includes £26,000 in rental income and £27,000 in trading income, your total qualifying income is £53,000, meaning MTD applies.
Certain income streams do not count towards the threshold when assessing whether you must join MTD:
- Rent-a-room income (within the £7,500 relief)
- Income covered by the £1,000 trading allowance or property allowance
- Employment income
- Dividend, savings or pension income
For example, if your 2024-2025 tax return includes £48,000 self-employed income, £6,000 from letting a room in your home and £900 from a small hobby business you would not be mandated into MTD for Income Tax (even though your overall income is above £50,000).
This is because the £6,000 from letting a room would be covered by Rent-a-room relief and the hobby trading income of £900 would be covered by the Trading Allowance.
As such, these income streams would not be shown on your tax return and therefore would not form part of the income calculation to mandate MTD for Income Tax.
Once mandated, you will remain within MTD unless your qualifying income falls below the relevant threshold for three consecutive tax years, or all sources of reportable income for MTD cease. Only after meeting these conditions can you exit the digital reporting requirements.
There are exemptions from Making Tax Digital for Income Tax, but they are limited.
Some are automatic, some are temporary, and some you will need to apply for – such as a digital exclusion exemption if you are unable to use digital tools due to age, disability, remote location or religious beliefs.
