Making Tax Digital: what is it and does it apply to you?

Qualifying income

The qualifying income is assessed on the previous year’s income. If your income from your sole trade and/or landlord business was more than £50,000 in the 2024/25 tax year, you will be brought into Making Tax Digital from 6 April 2026. The qualifying income is your total turnover before expenses are deducted.

The threshold will then reduce to £30,000 from 6 April 2027, which will bring more taxpayers into MTD. The government has also published legislation to reduce the threshold further to £20,000 from 6 April 2028.

You will be required to make 4 quarterly updates and complete the year-end process in the following tax year, much like the current annual Self Assessment process. The quarterly updates will only include income and expenses from your sole trade and/or property business. Any other income will continue to be dealt with as part of the year-end submission.

If your income later drops

If you meet the qualifying income threshold for one year but your income then falls below it, you do not drop out of MTD straight away. Once you start using the service, your qualifying income must stay below the relevant threshold for 3 tax years in a row before you can choose to opt out.

Registering for MTD

HMRC’s letter advising that you meet the criteria for MTD does not automatically sign you up. You will need to do this yourself. If you believe you meet the criteria but HMRC do not send you a letter, you must still sign up. The responsibility is on the taxpayer to check this.

When registering for MTD, you will need details of your sole trade business and/or property income. For landlords, this may include the date you first started to receive income from your property, if this was within the last two years, and the year you expect to qualify for MTD. If you are a sole trader, you will need your business name, your business address and your type of business. If you have both landlord and sole trade income, you will need to confirm details for each one.

You will need to sign up through your Government Gateway account. If you have an agent, they can sign you up instead.

Exemptions

Some taxpayers may be exempt from Making Tax Digital. The rules are more detailed than a simple checklist, but some examples of where an exemption may apply include age, disability, religious beliefs that prevent the use of electronic tools, living remotely without a reliable internet connection, or where a Deputy or Lasting Power of Attorney is in place. You may also be able to apply for an exemption if it is unreasonable or impractical for you to keep digital records or communicate electronically.

These are only examples, and the full exemption rules are more detailed. For a full breakdown of exemptions, including those that apply automatically and those that need to be applied for, visit the GOV.UK guidance.

MTD-compatible software

You will need to use software that is compatible with MTD. The software must allow you to keep digital records of your income and expenses, or connect to your existing records. It must also allow you to submit quarterly updates and complete the year-end submission.

Different types of software are available and accepted by HMRC. Some products create digital records and link to your business bank account so that income and transactions can be imported automatically. Others scan invoices and receipts, or allow you to enter income and expenses manually. The right solution will depend on how you currently keep your records and how much support you want from the software.

Frequently asked questions

Do I need to sign up if HMRC do not contact me?

Yes. If you meet the criteria, the responsibility is still on you to sign up.

Will I still need to submit my 2025/26 tax return?

Yes. You will still need to submit your 2025/26 tax return by 31 January 2027, even if you are due to move into MTD from the following tax year.

What if my income later drops below the threshold?

You will not usually leave MTD straight away. If your income later drops below the threshold, you will need to remain within the regime before you can ask to leave.

Can my accountant sign me up?

Yes. If you have an agent, they can sign you up and help you choose suitable software and manage the reporting requirements.

Need help with Making Tax Digital?

Making Tax Digital is a significant change for landlords and sole traders who are used to annual reporting. If you are unsure whether it applies to you, need help registering, or would like advice on software, we can help you prepare in good time and make sure everything is set up properly.

Get in touch with Stratos to discuss your circumstances.