From 6 April 2027, Making Tax Digital for Income Tax applies to sole traders and landlords with qualifying income over £30,000. That's a much larger group than this year's, and many of them won't think of themselves as running a business.
On 5 October HMRC reminded those affected that MTD is coming for them next April. It estimates that around 1,077,000 more people will be brought in. A year later the threshold falls again, to £20,000.
My team and I at RMHO Consulting have been talking to clients about this for a while. The people I worry about most aren't the ones running a trading business with a bookkeeper. They're the ones with a couple of rental properties, a consultancy on the side, or both, who have always pulled their figures together once a year in January. If that sounds like you, read on.
When MTD starts: the £50,000, £30,000 and £20,000 thresholds
MTD for Income Tax is being rolled out in three stages, and each one looks back at your qualifying income in an earlier tax year:
- 6 April 2026: qualifying income over £50,000 in 2024/25
- 6 April 2027: qualifying income over £30,000 in 2025/26
- 6 April 2028: qualifying income over £20,000 in 2026/27
So if you're joining next April, it's your 2025/26 return that decides it, and plenty of people are filing that one this winter. HMRC says it reviews each return and writes to those who need to start. It is equally clear that not getting a letter doesn't take away your responsibility to check. I wouldn't wait for the post.
MTD qualifying income: it's turnover, not profit
This is the point I make most often to clients. Qualifying income is your self-employment and property income before expenses, which HMRC calls turnover. Profit has nothing to do with it.
Take a landlord with £32,000 of rent a year. After mortgage interest, letting agent fees and repairs, the profit may be modest. They are still over £30,000 and still in scope.
Income from different sources is added together. HMRC's own example puts £25,000 of rent and £27,000 of self-employment income together to give £52,000. The guidance also settles three questions that come up again and again:
- Jointly owned property: only your share counts. £50,000 of rent split equally between two owners is £25,000 each.
- Overseas property: if you're UK resident, foreign rental income counts as well as UK rental income. If you're not UK resident, only the UK property and self-employment income declared on your UK return counts.
- What doesn't count: employment income, pensions, dividends (including from your own company) and your share of partnership profits.
That last one matters for a lot of the owner-managers I work with. Salary and dividends from your company won't bring you into MTD. A buy-to-let portfolio held personally on the side might.
If you have international affairs, check your residence status first, because it decides whether foreign property income is counted at all. HMRC's qualifying income guidance doesn't mention the foreign income and gains (FIG) regime by name. So where someone has claimed FIG relief on overseas income, I'd want to look at the specific facts rather than make any assumptions.
What MTD for Income Tax asks of you
Once you're in, there are three things to do:
- Keep digital records of your income and expenses.
- Use HMRC-recognised software to send quarterly updates.
- Complete your tax return through that software.
HMRC is keen to point out that the quarterly updates are short summaries, not extra tax returns. I am not convinced that's how we or our clients see it! Either way, the bigger change is to habits. If your records are a shoebox of receipts and a bank statement you look at once a year, keeping on top of things every quarter is a real shift, and that's where I expect people to come unstuck.
There are exemptions, including for people who are digitally excluded. Some apply automatically; others you have to apply for. Even if you're exempt, you still file a normal Self Assessment return.
What to do before April 2027
- Check your 2025/26 figures. Add up gross rents and gross self-employment income, counting only your share of anything jointly owned. If you come in under £30,000 but over £20,000, look at 2026/27 as well, because that's the year that decides 2028.
- If you have overseas property, confirm your residence position. It changes what counts.
- Decide who keeps the records. You, a bookkeeper or your adviser? Settle it now rather than halfway through the first quarter.
- Choose your software from HMRC's recognised list, and make sure it actually handles your type of income.
- Think about signing up early. HMRC is encouraging voluntary sign-up. You need to be registered for Self Assessment and to have filed a return in the last two years. I'd much rather a client found the gaps in their records on a practice run than with a real deadline in front of them.
- Don't assume you're in until you've checked whether an exemption applies.
Common questions
Is the £30,000 based on profit or turnover?
Turnover. It's your self-employment and property income before expenses, so a landlord with £32,000 of rent is in scope however small the profit.
HMRC hasn't written to me. Am I off the hook?
No. HMRC says it writes to people once it has reviewed their return, but not getting a letter doesn't remove your responsibility to check.
Do salary and dividends from my own company count?
No. Employment income, pensions, dividends and your share of partnership profits are all left out. Rent from property you hold personally does count.
Where that leaves you
MTD isn't a new tax, and for organised people it may even make January easier. But it does change how you keep your records, it does mean giving attention to your tax affairs more often, and the gross income test will catch landlords and side-business owners who aren't expecting it.
If you've got rental income, a side business or both and you're not sure which side of the line you fall, drop me a line. We're always happy to have a no-obligation conversation, and it's an easier one to have now than next spring.
Rob Osborne BA CTA
Director, RMHO Consulting Limited
rob@rmhoconsulting.com
www.rmhoconsulting.com
This article is general information, not advice on your own circumstances.