How will Making Tax Digital affect my business?

You may have heard that HMRC is modernising tax reporting with something called ‘Making Tax Digital for Income Tax’ (known as MTD for short). It’s a new way for sole traders and landlords to report income tax. Instead of completing an annual Self Assessment tax return, they’ll have to keep digital records and submit more frequent updates of their income and expenses using MTD-compatible software. You can read more about it in our beginners guide.

Wondering if this change applies to you? This article will help you figure that out. We’ll look at who’s affected first, the key dates to mark in your diary, and what to do if your situation changes. We can’t give you tax or financial advice, though, so speak to a professional if you’re unsure.

Who will need to use MTD?

MTD affects sole traders and landlords (find out exactly what is changing here). HMRC is rolling out the programme in stages, so when you need to start depends on your total business and property income.

You’ll need to use MTD from these dates if your qualifying gross income from self-employment and/or property rental is:

• £50,000 or more for the 2024 to 2025 tax year: from 6 April 2026

• £30,000 or more for the 2025 to 2026 tax year: from 6 April 2027

• £20,000 or more for the 2026 to 2027 tax year: from 6 April 2028

Your ‘qualifying gross income’ is your total income from self-employment or property rental before you take away any business expenses. This is different from your take-home pay.

Remember, any income you get from a regular salaried job where you pay tax through PAYE (Pay As You Earn) doesn’t count towards the MTD threshold. This is because HMRC already has real-time information about your PAYE income.

MTD in practice: examples for different businesses

To help make sense of the rules, here are some examples of how MTD might affect different types of businesses.

The sole trader

Meet Rachel, a freelance graphic designer. All her income is from her freelance work, and her gross earnings for the 2024 to 2025 tax year were £55,000. That means she needs to start using MTD from 6 April 2026, because her gross income is over the £50,000 threshold. 

The landlord

Say hello to Emily. Her only income comes from renting out a property. Her gross rental income for the 2025-2026 tax year was £32,000. Even though she’s not self-employed, the MTD rules still apply to her because she’s a landlord. As her income is over £30,000, she’ll be required to use MTD from 6 April 2027. 

Multiple income streams

And then we have Nady. He’s got a full-time salaried job that pays him £40,000 a year. He also has a side hustle selling handmade ceramics, and his gross income from this for the 2025 to 2026 tax year was £12,000.

Nady’s income from his PAYE job doesn’t count towards the MTD threshold; only his self-employment income is considered. And since the gross income from his ceramics gig is only £12,000, he’s not affected by MTD unless his income changes.

What if my business situation changes?

Being self employed means your gross income can change from year to year. Here’s what happens if you:

• stop trading: if you’re only source of qualifying income for MTD stops, you’ll be able to leave MTD.

• start a new business: you’ll need to use MTD from the start of the tax year after you first meet the income threshold. For example, if you start a business in the 2025-2026 tax year and your gross income is over £30,000, you’d need to use MTD from 6 April 2027. If you start part way through a tax year, you’ll have to increase your gross income accordingly. So if you only traded for the last six months, your gross income will be double what you actually earned. 

What are the next steps?

If you think you’ll be affected by MTD, here's what to do next:

1. Confirm your start date: use your gross income from the relevant tax year to figure out whether you’ll start in April 2026, 2027 or 2028. 

2. Choose MTD-compatible software: you'll need to keep digital records and use software that’s been approved by HMRC to send your quarterly updates.

With a Monzo Business Account, you can keep track of all your income and expenses in one place. It comes with nifty tools like Tax Pots that automatically set aside money for tax when you’re paid. Making it easy to stay organised ahead of the change.

Questions? Answers.

Does MTD apply to my normal salaried (PAYE) job?

No, the income you get from a salaried job that’s taxed through PAYE (Pay As You Earn) doesn’t count towards the Making Tax Digital threshold. Only income from self-employment and property rental is included.

How is my income calculated if I’m a self-employed landlord?

Your gross income for the MTD threshold is the combined total of your income from all self-employment and property rental activities before you take away any expenses. For example, if you make £20,000 as a sole trader and £15,000 from property rental, your total qualifying income would be £35,000.

When does MTD start?

The first official start date for MTD is 6 April 2026 for sole traders and landlords with a gross income of £50,000 or more in the 2024 to 2025 tax year. If you earn £30,000 or more it’s 6 April 2027, and £20,000 or more it’s from 6 April 2028. 

How can I get ahead of the deadline?

You’re here, so you’ve already started doing your homework. That’s a good start. There’s more information like this for anyone with a Monzo Business Account, including quick lessons on the essentials and timelines with reminders.

Are business partnerships affected by MTD?

No. HMRC plans to bring partnerships into the MTD programme at a later date, but there’s no set timeline for this yet. 

Features vary by plan.  Lite is free, Pro is £9 a month and Team is £25 a month. Only sole traders or limited company directors in the UK can apply. Ts&Cs apply.