HM Revenue and Customs is introducing the biggest overhaul of the self-assessment tax system in decades, known as Making Tax Digital (MTD), which will require sole traders and landlords to submit quarterly updates alongside their annual tax return. The first wave of affected individuals, those with combined self-employment and property income over £50,000, must start preparing from this April, with HMRC warning that more than 860,000 people need to act now.
The threshold will drop to £30,000 in April 2027 and to £20,000 in April 2028, bringing nearly 3 million people into the system. Affected individuals must use commercial software to keep digital records of each transaction, including dates and expense categories, and send quarterly updates to HMRC. The £50,000 threshold applies to gross turnover, not profits, and combines income from self-employment and property, but excludes other sources like employment or PAYE income.
Exemptions apply to certain groups, including disabled people receiving blind person's allowance until at least April 2029, recipients of qualifying care relief until April 2027, and limited companies. Foster carers, kinship carers, and shared-life carers receiving qualifying care relief are also exempt. HMRC is writing to affected taxpayers in February and March, but individuals are legally responsible for compliance even if they do not receive a letter.
Those earning up to £1,000 from property or trading, or up to £7,500 under the rent-a-room scheme, do not need to report this income and it will not count towards the MTD threshold. HMRC advises checking the 2024-25 tax return to determine if the threshold is exceeded, and applying for an exemption if it is not reasonably practical to use digital software due to age, disability, or lack of internet access.
