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Do You Need Self Assessment or Making Tax Digital (MTD) for Income Tax?
The way many UK sole traders and landlords report income to HMRC is changing. Making Tax Digital for Income Tax (MTD IT) will gradually replace the traditional annual Self Assessment process for many taxpayers.
This change is part of HMRC’s wider digital strategy aimed at improving accuracy and requiring more regular reporting of income and expenses.
However, many business owners and landlords are still unsure whether the new rules apply to them or when they need to start complying.
At Rothstone Accountants, we regularly help clients understand whether they will remain under Self Assessment or transition to MTD Income Tax, and what practical steps they should take now to prepare.
Speak to Rothstone Accountants
If you’re unsure whether MTD applies to you, professional guidance can save time and prevent mistakes.
Call Rothstone Accountants today on 0208 264 0016 to discuss your situation with our team.
We help sole traders and landlords prepare for MTD, choose the right accounting software, and stay fully compliant with HMRC requirements.
How Self Assessment Currently Works
Self Assessment is the system used by HMRC for individuals to report income that is not taxed automatically through PAYE.
Each year, taxpayers submit a Self Assessment tax return which declares income, claims allowable expenses, and calculates the tax due.
Who Typically Uses Self Assessment?
Self Assessment is used by a range of taxpayers including:
| Type of Taxpayer | Reason for Filing |
|---|---|
| Sole traders | Reporting self-employment income and expenses |
| Landlords | Declaring rental income from property |
| Company directors | Reporting dividends or additional income |
| Business partners | Reporting their share of partnership profits |
| Investors | Declaring capital gains or other taxable income |
The deadline for submitting an online Self Assessment tax return is normally 31 January following the end of the tax year.
For example:
| Tax Year | Filing Deadline |
|---|---|
| 6 April 2024 – 5 April 2025 | 31 January 2026 |
This annual reporting system has been in place for many years, but it is gradually being replaced for certain taxpayers.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD IT) changes how sole traders and landlords report income to HMRC.
Instead of submitting one annual return based on manual records, taxpayers affected by MTD must:
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Keep digital records of income and expenses
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Use MTD-compatible accounting software
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Submit quarterly updates to HMRC
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File a final declaration at the end of the tax year
MTD Reporting Structure
| Requirement | Description |
|---|---|
| Digital records | Income and expenses must be stored digitally |
| Quarterly updates | Submitted every 3 months via software |
| Final declaration | End-of-year submission replacing the traditional return |
| Approved software | Must be compatible with HMRC systems |
Although MTD changes how information is submitted, a final annual tax calculation still takes place.
When MTD Income Tax Will Apply
The transition to MTD Income Tax is happening gradually.
Eligibility depends on the combined income from self-employment and UK property.
MTD Income Thresholds
| Tax Year | Income Threshold | Start Date for MTD |
|---|---|---|
| 2024/25 | Over £50,000 | April 2026 |
| 2025/26 | Over £30,000 | April 2027 |
| 2026/27 | Over £20,000 | April 2028 |
This means many more taxpayers will eventually fall within the MTD regime as the thresholds reduce.
At Rothstone Accountants, we are already helping clients transition early so they are prepared before the deadlines arrive.
What Income Counts Towards MTD?
Not all types of income are included when HMRC determines whether MTD rules apply.
Qualifying Income
| Income Type | Included in MTD Threshold |
|---|---|
| Sole trader business income | Yes |
| UK property rental income | Yes |
Income That Does NOT Count
| Income Type | Included in Threshold? |
|---|---|
| Employment salary | No |
| Dividends from companies | No |
| Partnership profit share | No |
| Capital gains | No |
Only self-employment and UK rental income combined determine whether you must join MTD.
Example: When MTD Applies
Example 1 – Above the Threshold
| Income Source | Amount |
|---|---|
| Sole trader income | £40,000 |
| Rental income | £15,000 |
| Total qualifying income | £55,000 |
Because qualifying income exceeds £50,000, MTD rules will apply from April 2026.
The taxpayer would still submit a 2024/25 Self Assessment return, but future reporting would follow the MTD system.
Example 2 – Below the Threshold
| Income Source | Amount |
|---|---|
| Sole trader income | £20,000 |
| Dividends | £20,000 |
| Rental income | £15,000 |
| Total qualifying income | £35,000 |
Dividends do not count toward the MTD threshold.
This means qualifying income is £35,000, so MTD would not apply until the threshold falls to £30,000 in April 2027.
Jointly Owned Rental Property
If you own rental property jointly with someone else, only your share of the rental income counts towards the MTD threshold.
Example:
| Property Income | Total Amount | Your Share |
|---|---|---|
| Annual rent | £40,000 | £20,000 |
Only £20,000 counts towards your qualifying income.
Who Is Currently Exempt From MTD Income Tax?
Some taxpayers are not expected to join MTD at this stage.
Examples include:
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Partnerships
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Trusts and estates
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Non-resident entertainers or sportspeople with no qualifying income
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Individuals without a UK National Insurance number
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Some specific investment or trust arrangements
HMRC guidance may continue to evolve, so professional advice is recommended if your situation is complex.
What Happens If You Start a New Business?
If you start a new sole trader business, you will not join MTD immediately.
Instead, HMRC will assess your income after your first Self Assessment tax return is submitted.
Only once your income exceeds the threshold will HMRC require you to join MTD.
What If You Become a Landlord?
The same principle applies if you begin receiving rental income.
You will initially declare that income through Self Assessment. HMRC will then use the figures reported to determine whether MTD rules apply.
Can You Leave MTD If Income Falls?
In some situations, taxpayers may be able to leave MTD if their qualifying income drops below the threshold.
However, HMRC generally requires income to remain below the threshold for three consecutive years before allowing a taxpayer to exit the system.
This rule is designed to prevent businesses repeatedly moving in and out of MTD.
What You Should Do Now
Even if MTD does not apply immediately, preparation is important.
Steps to Prepare
| Step | Why It Matters |
|---|---|
| Use accounting software | Required for MTD compliance |
| Keep digital records | HMRC will no longer accept manual records |
| Review your income levels | Determines when MTD applies |
| Seek professional advice | Ensures correct setup and compliance |
Many businesses are already switching to digital bookkeeping to avoid last-minute pressure when the rules come into force.
At Rothstone Accountants, we support sole traders and landlords with:
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MTD readiness assessments
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Accounting software setup
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Digital bookkeeping systems
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Quarterly reporting compliance
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Self Assessment and tax planning
Get Expert Help with MTD and Self Assessment
Making Tax Digital represents one of the biggest changes to the UK tax reporting system in recent years. Understanding whether the rules apply to you — and preparing early — can prevent unnecessary stress and penalties.
If you are a sole trader or landlord and want clarity on MTD Income Tax, speak with Rothstone Accountants today.
📞 Call 0208 264 0016 to discuss your situation with our team.
We provide practical support with Self Assessment, digital bookkeeping, and full MTD compliance so you can focus on running your business with confidence.
