Making Tax Digital (MTD) is HMRC’s initiative to move tax reporting into the digital age, requiring businesses and individuals to keep digital records and submit updates using compatible software. If you are a business owner or financial professional trying to work out which types of businesses are affected by Making Tax Digital, the answer is not always straightforward. The rules differ depending on your income type, business structure, and how much you earn. This article gives you a clear, practical breakdown of who is in scope, what their obligations are, and how to prepare calmly and confidently.
Table of Contents
- Key takeaways
- 1. Which types of businesses are affected by Making Tax Digital
- 2. Sole traders: the first group in scope
- 3. Landlords: property income and MTD obligations
- 4. Making tax digital for freelancers and self-employed professionals
- 5. Partnerships: planned inclusion and what to do now
- 6. Limited companies: where they stand with MTD
- 7. Compliance workflows and software requirements
- My honest take on navigating MTD as a business owner
- How Cwabc can help you stay MTD compliant
- FAQ
Key takeaways
| Point | Details |
|---|---|
| Thresholds are phased | MTD for Income Tax applies from £50,000 in 2026, dropping to £20,000 by 2028, pulling in more businesses each year. |
| Sole traders and landlords are first | These groups are the primary businesses impacted by MTD right now, with quarterly digital reporting already required. |
| Limited companies are largely exempt | MTD for Corporation Tax was scrapped in 2025, though VAT-registered companies must still comply with MTD for VAT. |
| Partnerships join later | Most partnerships are not yet mandated but should begin preparing their software and workflows now. |
| Exemptions do exist | Digitally excluded individuals can apply to HMRC for an exemption, but applications must be made in good time. |
1. Which types of businesses are affected by Making Tax Digital
Understanding the qualifying criteria is the first step. Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is the formal name for the policy affecting most self-employed individuals and landlords. It does not currently apply to corporation tax or most partnership filings.
The income thresholds that trigger MTD obligations are:
- From 6 April 2026: Individuals with qualifying income over £50,000 from self-employment or property are mandated
- From April 2027: The threshold reduces to £30,000
- From April 2028: The threshold reduces further to £20,000
Qualifying income means gross income before expenses from self-employment or property letting. It does not include employment income, dividends, or savings interest.
Exemptions are available. Those who are digitally excluded due to age, disability, or location can apply to HMRC. Certain religious objections are also recognised. Trustees and personal representatives of estates are currently excluded from MTD for ITSA as well.
Pro Tip: If your income sits close to a threshold, check whether combined income streams from multiple businesses or properties push you into scope. Business owners often underestimate qualifying income when it comes from more than one source.
2. Sole traders: the first group in scope
Sole traders with trading income above the relevant threshold are among the first businesses impacted by MTD for ITSA. If you run your own business as an individual, whether as a plumber, consultant, photographer, or any other trade, you fall into this category.
MTD for Income Tax went live on 6 April 2026 for those earning above £50,000. That means quarterly digital updates to HMRC are now a legal requirement, not optional.
Here is what sole traders need to do:
- Keep digital records of all income and expenses throughout the year
- Submit four quarterly updates to HMRC using MTD-compatible software
- Complete an end-of-year declaration to finalise tax liability
- Replace the traditional Self Assessment return process with this new workflow
The shift from annual to quarterly reporting is the biggest practical change. You can no longer batch everything up at the end of January. Records need to be current and organised throughout the year.
3. Landlords: property income and MTD obligations
Landlords are treated in the same way as sole traders under MTD for ITSA. If your gross rental income exceeds the relevant threshold, you are required to comply. This applies whether you let one property or several.
The threshold reduction to £20,000 by April 2028 is significant for landlords. Approximately 970,000 additional sole traders and landlords will be brought into scope at that point. Many landlords currently below the threshold will need to be ready.
If you have both rental income and self-employment income, the two are combined when calculating whether you meet the threshold. A landlord earning £25,000 in rent and £30,000 from a side business would already be in scope from April 2026.
For detailed guidance on how property income interacts with MTD rules, the MTD ITSA guide for landlords at Cwabc covers the key scenarios clearly.
4. Making tax digital for freelancers and self-employed professionals
Freelancers are essentially sole traders in HMRC’s eyes. Whether you work in creative industries, IT, consulting, or any other field, the same rules apply. Making tax digital for freelancers means moving away from the end-of-year scramble and building a habit of regular digital record keeping.
The good news is that quarterly updates do not require a full set of accounts. They are summaries of income and expenses for the period. The software does most of the heavy lifting once your records are kept digitally.
Where freelancers sometimes run into trouble is when they have multiple income streams. A freelance designer who also earns rental income from a flat needs to track both separately in their software and submit combined updates. Getting the right software set up from the start avoids a lot of confusion later.
5. Partnerships: planned inclusion and what to do now
Most partnerships are not yet mandated under MTD for ITSA. Partnerships are expected to join MTD later than individuals, with specific timelines still to be confirmed by HMRC.
That said, individual partners who have other self-employment or property income above the threshold are already in scope for their personal MTD obligations. The partnership filing itself is separate from a partner’s individual MTD requirements.
Steps partnerships should take now:
- Identify which partners are already in scope individually
- Review your current accounting software and whether it will support MTD partnership filings
- Separate personal income reporting from partnership income in your records
- Monitor HMRC announcements for confirmed partnership mandation dates
Pro Tip: Do not wait for the official mandate before choosing software. Staged implementation works best when you adapt your systems early, rather than rushing to comply at the last minute.
6. Limited companies: where they stand with MTD
This is where a lot of confusion exists. Many business owners assume that because their limited company files a corporation tax return, they must be affected by MTD for corporation tax. That is no longer the case.
MTD for Corporation Tax was scrapped in July 2025, so limited companies are not currently required to comply with MTD for Income Tax or MTD for Corporation Tax.
However, there is one important exception. If your limited company is VAT registered, you must already be complying with MTD for VAT. That has been in place for most VAT-registered businesses since 2022.
Here is a summary to make the current position clear:
| Business type | MTD for Income Tax | MTD for VAT | MTD for Corporation Tax |
|---|---|---|---|
| Sole trader (above threshold) | Yes, from April 2026 | If VAT registered | Not applicable |
| Landlord (above threshold) | Yes, from April 2026 | Not usually applicable | Not applicable |
| Partnership | Planned, date TBC | If VAT registered | Not applicable |
| Limited company | No | If VAT registered | Scrapped (2025) |
Financial professionals advising incorporated clients should focus on MTD for VAT compliance for now, and keep an eye on any future announcements regarding corporation tax digital reporting.
7. Compliance workflows and software requirements
The making tax digital implications for day-to-day business operations are real and practical. The shift from annual to quarterly reporting changes how you manage your books throughout the year.
Digital records and quarterly summaries must be submitted using MTD-compatible software, followed by a final end-of-year declaration. The software connects directly to HMRC’s systems, so manual re-entry of data is eliminated.
Common pitfalls to avoid:
- Leaving records until the end of the quarter and scrambling to catch up
- Using spreadsheets that are not bridging-software compatible
- Mixing personal and business expenses in the same account
- Failing to account for all qualifying income when assessing threshold position
The benefits are genuine too. Quarterly updates improve in-year tax visibility and reduce the risk of a large unexpected tax bill at year-end. You know where you stand throughout the year, which makes planning much easier.
Pro Tip: Practitioners advise validating qualifying income for each client before selecting and implementing software. Some income categories fall outside MTD scope entirely, and getting this wrong adds unnecessary complexity.
For a step-by-step breakdown of the timeline, the MTD ITSA guide for 2026 to 2028 at Cwabc is worth bookmarking.
My honest take on navigating MTD as a business owner
The anxiety I see most often comes from people who have heard about Making Tax Digital but have not yet checked whether it actually applies to them. That uncertainty is more stressful than the rules themselves.
In my experience, the businesses that handle this calmly are the ones who check their qualifying income early, choose their software before they are forced to, and build a simple quarterly routine rather than treating it as a crisis every three months.
The biggest misconception I come across is that MTD is only for large businesses. The threshold reductions mean that by 2028, a significant number of part-time landlords and small freelancers will be in scope. Waiting until you are mandated to start preparing is the one thing I would urge you to avoid.
Financial professionals have a real opportunity here. Clients who are not yet in scope for 2026 still need guidance on where they are headed. A two-step approach works well: get current-threshold clients compliant first, then proactively prepare lower-income clients for 2027 and 2028.
The digital shift is not something to fear. It is a process, and with the right support, it is genuinely manageable.
— Chris
How Cwabc can help you stay MTD compliant
If you are a sole trader, landlord, or small business owner trying to work out what Making Tax Digital means for you, Cwabc is here to help. Based in Tonbridge, Cwabc specialises in practical, jargon-free bookkeeping and accounting support tailored to exactly the types of businesses affected by MTD.
From setting up MTD-compatible software to managing your quarterly submissions and end-of-year declarations, Cwabc handles the detail so you do not have to. Whether you are already in scope or planning ahead for the 2027 or 2028 thresholds, getting the right structure in place early saves a great deal of stress later.
Explore Cwabc’s bookkeeping services in Tonbridge to see how tailored support can keep your compliance on track without the last-minute chaos. You can also find out more about MTD software setup in Kent if you need help choosing and configuring the right tools for your business.
FAQ
Who is affected by Making Tax Digital for Income Tax?
Sole traders and landlords with qualifying gross income above £50,000 are mandated from April 2026. The threshold reduces to £30,000 in 2027 and £20,000 in 2028, bringing more individuals into scope each year.
Are limited companies required to comply with MTD?
Limited companies are not currently required to comply with MTD for Income Tax or Corporation Tax, as MTD for Corporation Tax was scrapped in 2025. However, VAT-registered limited companies must still comply with MTD for VAT.
Do partnerships have to use Making Tax Digital?
Most partnerships are not yet mandated under MTD for Income Tax, though individual partners with qualifying personal income above the threshold must comply. HMRC has confirmed partnerships will be included at a later date.
Can I apply for an exemption from Making Tax Digital?
Yes. Individuals who are digitally excluded due to age, disability, remote location, or certain religious beliefs can apply to HMRC for an exemption. Applications should be submitted ahead of your mandation date with supporting evidence.
What software do I need for MTD compliance?
You must use HMRC-recognised MTD-compatible software to keep digital records and submit quarterly updates. Options include cloud-based platforms such as Xero, FreeAgent, and QuickBooks, which connect directly to HMRC’s systems.
