Making Tax Digital - will the new rules apply to you?

Under MTD rules, your qualifying income is the total income you get in a tax year from self-employment and property (before deducting any expenses).

(Note: Partnerships will come within the scope of MTD in the future, but no date has yet been set.)

Multiple income sources and jointly owned property

Your qualifying income does, however, include a share in the rents from jointly owned property, and income from multiple sources is aggregated.

For example, someone with £25,000 from rental income and £27,000 from self-employment income would have a qualifying income of £52,000.

Those with multiple sources of self-employed income will need to submit a quarterly submission for each income source. But it is important to note that not all existing software is able to do this, so it might be necessary to run two different systems.

How are ceased trades and rental income treated?

It has been confirmed that self-employment or property income that has ceased since the submission of the last tax return will be included in qualifying income if there is another continuing source of self-employment or property income.  

However, if all your self-employment or property income sources have ceased since you submitted your last Self-Assessment tax return, you will not need to use Making Tax Digital for Income Tax, and you should notify HMRC.  

In practical terms, this means that ceased trades or rental streams which have ceased will be included in the MTD “trigger” unless all such sources had ceased prior to 6 April 2026. 

Accounting periods and annualisation

If your accounting period, perhaps because of a change in your year-end, is longer or shorter than 12 months, the income needs to be annualised for the purposes of computing the qualifying amount.

VAT and cash basis accounting

If you use the cash basis and are VAT registered, you can choose to include or exclude VAT when you declare your business income. If you include it, then it will count towards your qualifying income.

Trust Income

If you are a beneficiary of a bare trust, or if you have property or trading income from a trust which is mandated directly to you, such income will also be included as part of the qualifying amount.

Software requirements and practical challenges

Clearly, the system is still far from perfect.

HMRC believe that that free software will be available, but there is very little choice, and some “free” packages will only deal with the simplest cases or require bank feeds, which may involve a cost.

HMRC have also confirmed that once a taxpayer is within MTD, it will no longer be possible to use the HMRC Self-Assessment software to file the year-end return, but instead, the taxpayer will need to use the same commercial software that is used for the quarterly MTD returns.

A quick search in early December for an individual with multiple trades, rentals, dividends and pension income using the HMRC “Find software” tool, only showed nine free suppliers, and eight of those were still showing the year-end summary return as “under development”.
 

So, is it possible to opt out of MTD?

There is a limited relief for those who are “digitally excluded”, but the rules are strict and HMRC permission will need to be obtained. The criteria are: 

1. your age, health condition or disability stops you from using a computer, tablet or smartphone to keep digital records or submit them to HMRC. 

2. you’re a practising member of a religious society or order whose beliefs are incompatible with using digital communications or keeping digital records, and you do not use a computer, tablet or smartphone for business or personal use. 

3. you cannot get internet access at your home or business because of your location, nor can you get access at a suitable alternative location. 

There is also a temporary exemption until April 2027 for those who claimed averaging relief, received trust or estate income in 2024/25, or for some taxpayers who are non-resident or have some types of foreign income.
 

Is incorporation an alternative?

An alternative approach would be to convert all the trading entities into a limited company or partnership (neither of which currently fall into MTD, although this will not always be the case). 

Clearly, there are many other aspects of such a change, including capital taxes, possible Stamp Duty Land Tax (SDLT) and of course loss of 100% control – but for those who are considering incorporation sooner or later, this may be the point at which the nettle needs to be grasped.

Registering for MTD

HMRC have started contacting taxpayers who they think will be affected (based on 2024/25 data), but this process may not be complete before the April implementation, and the onus is on the taxpayer to register.

Although the process is designed to be simple, it is clear from the information released by HMRC that even the registration criteria are not straightforward.

Anyone who is unsure whether Making Tax Digital (MTD) will apply to them, is concerned about the changes, or who is not confident in their ability to implement and operate the new system from April 2026, should seek specialist advice at an early stage.

Speak with your local MHA adviser for further information and guidance, and to help ensure you are fully prepared for the transition.

To further explore MTD, including the reporting requirements and timeframes, please read the MTD article in our 2025/26 Tax Planning Guide.