Making Tax Digital for Income Tax

Does Your Income Put You in Scope?

From 6 April 2026, Making Tax Digital for Income Tax will begin to affect many sole traders and landlords.

The first group brought into the new system will be individuals with qualifying income of more than £50,000. But this is where confusion can easily creep in, because “qualifying income” does not mean all income, and it does not mean profit.

So, what does count? And how do you know whether you need to prepare?

What is qualifying income for Making Tax Digital?

For Making Tax Digital for Income Tax, HMRC looks at your gross income from self-employment and property.

In plain English, that means the income you receive before expenses are deducted.

If you have more than one trade, more than one rental property, or a mixture of self-employment and property income, these figures are added together to work out whether you are over the relevant threshold.

For example:

In this example, the total qualifying income is £55,000, so the individual would be within the first phase of Making Tax Digital for Income Tax from April 2026, unless an exemption applies.

HMRC will generally use the information reported on the 2024/25 Self Assessment tax return to decide whether someone needs to join Making Tax Digital from April 2026. HMRC says it will write to taxpayers where its review shows qualifying income over £50,000, but taxpayers remain responsible for checking whether they need to comply.

What income is not included?

This is an important point. HMRC does not count every type of income reported on a tax return.

The following are not normally included as qualifying income for Making Tax Digital for Income Tax:

So, if you had £40,000 of employment income and £15,000 of rental income, your qualifying income would be only £15,000. You would not be brought into Making Tax Digital for Income Tax from April 2026 on those figures alone.

The key point is this:

It is your gross self-employment and property income that matters, not your total personal income and not your taxable profit.

What if you started trading part way through the year?

If you started a self-employed business part way through a tax year, HMRC may annualise your income when working out whether you are over the threshold.

For example, if your tax return shows six months of self-employment income, HMRC may double that figure to estimate a full year’s income.

Property income can also require care, especially where a property is jointly owned. If you own a rental property with someone else, only your share of the rental income should count towards your qualifying income.

This is one of the areas where mistakes are easy to make. A landlord or sole trader may think they are safely below the threshold, only to find that annualisation or combined income pushes them into Making Tax Digital.

Are there exemptions?

Yes, but they need to be considered carefully.

HMRC guidance confirms that some taxpayers may be able to claim either a temporary exemption or a digitally excluded exemption. This may include people who cannot reasonably use digital tools because of age, disability, location, religious grounds, or other relevant circumstances.

There are also specific groups and situations where Making Tax Digital may not apply immediately, or may be deferred, depending on the taxpayer’s circumstances. HMRC’s exemption guidance should be checked before assuming that an exemption applies.

What happens if you are over the threshold?

If you are within Making Tax Digital for Income Tax, you will need to:

1. Keep digital records using compatible software.
2. Send quarterly updates to HMRC.
3. Submit separate quarterly updates for each self-employment or property business.
4. Finalise your tax position after the end of the tax year.
5. Submit your final declaration by the usual Self Assessment deadline of 31 January.

This does not mean tax is paid quarterly. The payment deadlines are not the same as the reporting deadlines. However, it does mean your bookkeeping will need to be kept up to date throughout the year.

For many sole traders and landlords, this will be a significant change from preparing records once a year for the Self Assessment tax return.

What if you are below £50,000?

You may not be in the first wave, but Making Tax Digital is being introduced in stages.

The planned thresholds are:

HMRC’s current guidance confirms the phased rollout, with the £50,000 threshold from April 2026, £30,000 from April 2027 and £20,000 from April 2028. The 2026 regulations also refer to the phased rollout by qualifying income thresholds.

This means many taxpayers who are not affected in April 2026 may still need to prepare for Making Tax Digital over the next couple of years.

Why this matters

Making Tax Digital is not just a change to how tax returns are filed. It changes the rhythm of tax compliance.

Instead of pulling records together once a year, affected sole traders and landlords will need to keep their records digitally and submit information to HMRC during the year.

That creates both a challenge and an opportunity.

The challenge is that poor record keeping will become much harder to manage. The opportunity is that better bookkeeping can give you a clearer view of your business or property finances throughout the year, rather than months after the year end.

Are you ready for Making Tax Digital?

If you are a sole trader, landlord, or both, now is the time to check whether your income could bring you within Making Tax Digital.

At Holden Associates, we can help you:

1. Check whether your income counts as qualifying income.
2. Work out when you are likely to be brought into Making Tax Digital.
3. Review whether any exemptions may apply.
4. Choose suitable bookkeeping software.
5. Get your records ready before the rules apply.
6. Stay compliant with quarterly reporting requirements.

If you are unsure whether Making Tax Digital applies to you, please get in touch with our team.

It is much better to prepare early than to be caught out when HMRC’s new reporting requirements begin.