Who is affected by Making Tax Digital for Income Tax - and who is exempt?

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Making Tax Digital for Income Tax is being phased in from April 2026. It applies to sole traders and landlords, with start dates determined by their level of qualifying income.

The first to be affected are those with income over £50,000, who will need to comply with the new requirements from 6 April 2026, using figures from their 2024–25 tax return.

In the coming tax years, the threshold will drop, meaning sole traders and landlords with lower qualifying incomes are also affected. The implementation is as follows:

Start date	Affected taxpayers	Threshold	Based on tax year
6 April 2026	Sole traders and landlords	Over £50,000	2024–25
6 April 2027	Sole traders and landlords	Over £30,000	2025–26
6 April 2028	Sole traders and landlords	Over £20,000	2026–27

What counts as qualifying income for MTD?

Qualifying income for MTD purposes is defined as the total gross income (turnover not profit) from self-employment and UK and foreign property. This is before any expenses or allowances, including the trading allowance or property allowance, and is the total combined income across all relevant sources. It is not assessed per business.

For example, if your 2024-2025 tax return includes:

• £26,000 in rental income
• £27,000 in trading income

Your total qualifying income = £53,000, meaning Making Tax Digital applies from 6 April 2026.

For new businesses, income is annualised to determine the relevant level.

Income that does not count towards the threshold

Certain income streams do not count towards the threshold when assessing whether you must join MTD:

• Rentaroom income (within the £7,500 relief)
• Income covered by the £1,000 trading allowance or property allowance
• Employment income
• Dividend, savings or pension income

For example, if your 2024-2025 tax return includes:

• £48,000 self-employed income
• £6,000 from letting a room in your home
• £900 from a small hobby business

You would not be mandated into MTD for Income Tax (even though your overall income is above £50,000), as the £6,000 from letting a room would be covered by Rent-a-room relief and the hobby trading income of £900 would be covered by the Trading Allowance. As such, these income streams would not be shown on your tax return and therefore would not form part of the income calculation to mandate MTD for Income Tax.

Income that does count towards the threshold once you are mandated into MTD

It is important to note that only income actually declared on the tax return determines if you are mandated into MTD, but once you are, all self-employed, trading and property income must then be included in digital submissions, even if it would normally be exempt from self-assessment.

For example:

• Rentaroom relief - If trading income alone exceeds the threshold (e.g., £55,000), MTD applies, and whilst rent from letting a spare room of £5,000 would not be on the usual tax return as it is covered by rent-a-room relief, once mandated into MTD, it must be included in the quarterly MTD returns.
• Trading allowance and property allowance - If trading and property let income exceeds the threshold (e.g., £60,000 in total), MTD applies, and once it does, this also means trading income from a hobby trade of less than £1,000 must be included in the quarterly MTD submissions, even though it would not be on the usual tax return as it is covered by the Trading Allowance.

In summary, income covered by rent-a-room and trading/property allowances is not included in the calculation of income to mandate entry into MTD, but if other income does mandate you into MTD, then rent-a-room and/or trading and property income does need to be reported on your quarterly returns.

Staying in or leaving the MTD regime

You will remain within the MTD regime unless your qualifying income falls below the relevant threshold for three consecutive tax years or all sources of reportable income for MTD cease.

Only after meeting these conditions can you exit the digital reporting requirements.

Who is not included in Making Tax Digital?

MTD for Income Tax does not apply to partnerships and limited companies.

The Government’s plan to include general partnerships is currently on hold, and it will likely monitor the success of the 2026-2028 rollout and revisit partnerships at a later date.

For companies, The Government has temporarily ruled out extending MTD to Corporation Tax, admitting that one size does not fit all for digital tax purposes, confirming that a different approach will be explored.

Exemptions from MTD for Income Tax

There are exemptions from Making Tax Digital for Income Tax, but they are limited.

1. You may be able to apply for a digital exclusion exemption if you are unable to use digital tools due to age, disability, remote location or religious beliefs.
2. Businesses already exempt from filing VAT returns using MTD software can contact HMRC and confirm there are no changes in circumstances. HMRC will then grant an exemption from MTD for Income Tax.

Additional exemptions requiring notification to HMRC include:

• Taxpayers who have Power of Attorney
• Non-resident foreign entertainers or sportspeople with no other UK income
• Ministers of religion
• Lloyd’s underwriters
• Recipients of Married Couple’s Allowance
• Recipients of Blind Person’s Allowance

How to apply for an MTD exemption

If you believe you qualify for an exemption, you must apply to HMRC before you are required to use MTD. You’ll need your National Insurance number, name, address, details of how you currently submit your tax return, the reason you think you are exempt, and if you have an accountant, what they will do for you. HMRC will consider each application on a case-by-case basis, within 28 days of the application.