MTD (Making Tax Digital for Income Tax) is a new digital tax reporting regime introduced by HMRC for sole traders and individuals receiving rental income. The scheme became mandatory from 6 April 2026. It requires eligible taxpayers to report their income quarterly, replacing the traditional system of submitting information only once a year. In this article, we will look at who meets the criteria for compliance, the relevant income thresholds, and what obligations affected taxpayers need to be aware of.
Who Does MTD for Income Tax Apply To?
MTD applies to the gross income generated from:
- Self-employment
- Property rental businesses
If you have both self-employment and property business income, you must report them on a combined basis. Starting from 6 April 2026, individuals whose combined gross “qualifying income” from these sources exceeded £50,000 in the 2024/25 tax year are required to join MTD.
For example, if you received £15,000 in rental income and £40,000 in self-employment income, your total qualifying income would be £55,000. Because this exceeds the £50,000 threshold, you would fall within the scope of MTD.
Phased Introduction of MTD
HMRC has announced a phased rollout of MTD for Income Tax based on income thresholds.
Tax Year: 6 April 2024 – 5 April 2025
- MTD start date: 6 April 2026
- Mandatory if qualifying income exceeds £50,000
Tax Year: 6 April 2025 – 5 April 2026
- MTD start date: 6 April 2027
- Mandatory if qualifying income exceeds £30,000
Tax Year: 6 April 2026 – 5 April 2027
- MTD start date: 6 April 2028
- Mandatory if qualifying income exceeds £20,000
Income Exempt from MTD Thresholds
Although certain income must still be reported through Self Assessment, the following sources are excluded from the MTD calculation:
- Employment income taxed through PAYE
- Partnership profit shares
- Dividend income
- Pension income
For example, if you receive employment income of £40,000 and rental income of £15,000, only the rental income of £15,000 counts towards the MTD threshold. Therefore, you would not be required to comply with MTD.
Starting a Business Partway Through the Tax Year
If you start a self-employed business during a tax year, HMRC will annualise your qualifying income based on the available data to determine if you meet the MTD threshold.
For example, if you report only six months of self-employment income, HMRC will double that figure to estimate your annual qualifying income.
“If you have property income, you must annualise it yourself to determine whether you meet the MTD threshold. Additionally, for jointly owned properties, only your specific share of the rental income is included for MTD purposes.
Other Exemptions
The following taxpayers are exempt from MTD for Income Tax, at least until the 2027/28 tax year:
- Individuals claiming Averaging Relief
- Individuals eligible for Qualifying Care Relief
- Taxpayers required to submit SA107 supplementary pages (trust and estate income)
- Taxpayers required to submit SA109 supplementary pages
Obligations of MTD
Individuals within the scope of MTD for Income Tax will be required to:
- Maintain digital accounting records
- Use HMRC-compatible software
- Submit quarterly updates to HMRC
- Submit separate quarterly updates for each business or property business
- Submit a year-end declaration
The year-end declaration must be submitted by 31 January following the end of the relevant tax year, similar to the current Self Assessment filing deadline.