Many more sole traders and landlords will be required to comply with Making Tax Digital (MTD) for income tax when the qualifying income threshold is reduced from £30,000 to £20,000
Qualifying Income For MTD Reduced To £20,000
The Budget confirmed that taxpayers with a qualifying income of £50,000 or more will be required to join MTD in April 2026 as planned. Those with a qualifying income between £30,000 and £50,000 will be brought into MTD from April 2027.
What’s Changing?
The scope will be expanded to include incomes of £20,000 and above by the end of the current parliament, bringing many more sole traders and landlords within the scope of MTD.
To comply with the requirements, mandated taxpayers will need to use third-party MTD-compliant software to keep digital records and file quarterly summaries of their income and expenses with HMRC.
Where Do I Stand?
Qualifying income is broadly defined as total gross income from trading and property, as reported on the most recent self assessment tax return. To decide which taxpayers will be mandated to join MTD for income tax in April 2026, HMRC will look at the 2024-25 tax return, i.e. the one for the current tax year.
You will need to use MTD from April 2026 if you:
- are an individual registered for self assessment;
- get income from self-employment or property, or both, before 06.04.25; and
- have a qualifying income of more than £50,000 in the 2024-25 tax year.
You can use HMRC’s online eligibility checker to figure out when you will be required to join MTD for income tax.
Where an individual cannot use MTD, for example, if they are digitally excluded, they may be able to claim an exemption. We can help you with this when the application process opens.
Making Tax Digital Support
At Digital Tax Matters, we can help you comply with the MTD regulations. We offer assistance in selecting and implementing digital accounting systems, provide training and ongoing support, conduct compliance checks, and ensure accurate quarterly reporting. Many of our clients choose to outsource their digital bookkeeping to us.
You’ll need to take three steps to prepare for the changes which come into force on the 1st of April 2026:
- Ensure you have set up and have access to your own gateway:
If you haven’t already, then you will be required to create a personal gateway as soon as possible; not only is this necessary for MTD, but it is also a useful tool to keep on top of your personal tax affairs. Your gateway will link to our agent services account and create a digital handshake, which will allow us to file the quarterly returns on your behalf. You can this link to create your personal gateway. - Use software to allow a seamless exchange of information with us:
We have conducted research across a number of software providers, and we advise the best and most efficient software to help you Comply is ‘Xero Simple’‘. This software is packed with features to assist you in complying with the upcoming changes, including a live bank feed and digital receipt-capturing app. The cost for this software is £7 per month. - Set up a separate business account for business use only (includes rental income and sole traders):
If you are currently using your personal account for business transactions, we advise you to set up a separate account for business use only. This will ensure the transactions being pulled through with the live feed capture business transactions only. This will help keep your accountancy fees as low as possible and allow us to report the quarterly figures as efficiently as possible.
Please contact us and discuss this in further detail with your account manager. You can get in touch with us as a new client or for general enquiries via 01234 357595 or [email protected].