What the numbers say about Making Tax Digital for the self-employed

Making Tax Digital for the self-employed widens on 6 April 2027 to sole traders and landlords whose combined turnover on their 2025/26 tax return was over £30,000. They'll have to keep digital records and send HMRC quarterly updates from compatible software, and HMRC expects about 1.08 million more people to be brought in.¹²

Who needs Making Tax Digital for the self-employed from April 2027?

Of the seven million people in the UK with self-employment or property income, HMRC expects around 2.9 million to need Making Tax Digital eventually.¹ The first wave, everyone over £50,000, was about 864,000 people, April 2027 adds roughly 1.08 million, and a further 975,000 follow in April 2028 when the threshold drops to £20,000.¹² That makes the second wave the biggest of the three, and it's the one that reaches ordinary trades, because a mobile hairdresser, a decorator or a freelance designer turning over £35,000 is squarely in it.

The other side of that figure gets less attention. If 2.9 million out of seven million are eventually in, more than four million self-employed people and landlords will stay on the familiar once-a-year return. These are HMRC forecasts built from returns already filed, so they tell you the size of the change but nothing about your own position, which only your own figures can do. It's a big shift all the same, and HMRC's director of Making Tax Digital, Craig Ogilvie, has called it the biggest transformation since self assessment, the yearly tax return system, arrived in 1997.¹

The £30,000 is turnover, and it includes your rent

Qualifying income is HMRC's name for the figure that decides whether you're in, and it's your total self-employment and property income before expenses, taken from the previous year's tax return.³ That catches people out because most of us think in profit rather than takings. The Low Incomes Tax Reform Group gives the example of a self-employed journalist with £36,000 coming in and £10,000 of costs, so his profit was £26,000, yet he must follow the new rules from April 2027 because his gross income cleared £30,000.²

Different sources are added together, too. HMRC's own example is £25,000 of rent plus £27,000 from self-employment, which makes qualifying income of £52,000.³ Wages from a job, dividends from your own company, pensions and your share of profit as a partner in a partnership are all left out of the test.³ One small wrinkle is that Which? describes the line in one place as income "of £30,000", while HMRC and LITRG guidance says more than £30,000, so a turnover of exactly £30,000 doesn't trigger it.¹²

Swapped work belongs in that turnover as well, and it's the bit we'd most want anyone who trades services to know. A service swap is generally treated as a sale at market value for tax, so if a decorator paints a café in return for catering worth £2,000 at the café's normal prices, he records £2,000 of income just as if he'd been paid in cash. Over a year, swaps like that could be what tips a business from £28,000 to over the line. We've covered what HMRC expects when you swap work in more detail, and we'd always get your accountant to check how your own swaps are recorded.

Which tax return decides when I have to start?

It's your 2025/26 return, due by 31 January 2027, that decides the April 2027 wave.²⁴ A quieter year after that won't get you out of it. In the same LITRG example the journalist expects his turnover to fall to about £18,000 in 2026/27, and he still has to join in April 2027, because only stopping trading altogether before his start date would change that.²

HMRC checks returns and writes to people over the threshold, but its guidance is clear that you must work out your own figure and sign up even if no letter arrives.³ We'd do the check now rather than wait for the post, and it's a ten-minute job. Take the turnover figure for each business on your 2025/26 return, add any rent before expenses, and see whether the total is above £30,000.

Is there a soft landing for penalties in 2027?

Not as things stand, and it's the detail that's easiest to miss. The first wave got a year's grace, with no penalty points for late quarterly updates in 2026/27, which was a concession announced in the November 2025 Budget.⁵ LITRG says HMRC hasn't announced the same for anyone joining in 2027/28 or later.⁵

The penalties work rather like points on a driving licence. Each late submission earns a point, points stay on your record for two years, and reaching four points brings a £200 penalty.⁵ With four quarterly updates and a final return each year, a sole trader has five deadlines where a point can land, so a business that's routinely a week late could reach £200 inside a single year. If you want the day-to-day mechanics, our guide on how Making Tax Digital will work for sole traders goes through them.

Volunteering this winter gets you the grace year anyway

This is the part we'd think hardest about. Someone due in April 2027 can sign up now and volunteer for the current tax year, sending the quarterly updates they've already missed through their software.⁶ While you're a volunteer, missing a quarterly deadline earns no penalty, although you still have to send the updates before you file your tax return.⁷ The catch is that volunteers hit the £200 penalty at two points on late returns, not four, and from 6 April 2027 the normal rules take over for anyone who becomes required to use it.⁷ Our view is that if your books are already tidy, a few practice quarters while mistakes cost nothing is a good deal, but if they're a carrier bag of receipts, we'd sort the records out first.

Software doesn't have to cost much. GOV.UK says free products exist for people with simple tax affairs, though they may limit things like the number of transactions, and bridging software can link a spreadsheet you already keep to HMRC.⁸ Which? notes that most established packages such as Sage, QuickBooks and Xero are compatible, and that some products only handle one type of income, which matters if you also let a flat.¹

Here's the order we'd work in between now and next summer:

1. This week, run the turnover check on your 2025/26 figures.
2. File your 2025/26 return by 31 January 2027, because it decides your start date.
3. Choose software that covers every source of income you have, and test it on a month of real transactions.
4. Start recording the date, amount and category of every transaction weekly or fortnightly, as accountants quoted by Which? suggest.¹
5. Sign up on GOV.UK before 6 April 2027, choosing the 2027/28 tax year, or the current year if you've decided to volunteer.²
6. Send your first required quarterly update, covering 6 April to 5 July 2027, by 7 August 2027.⁴

Getting the books set up without paying cash for it

Most of the effort is a one-off job of picking software, connecting a bank feed and setting up categories so the quarterly totals come out right, and that's exactly the sort of job a bookkeeper might swap for your own trade. You can post a request on the exchange board for help with MTD setup, and you'll agree the details with whoever responds in a message thread before anyone starts. Just remember to record the swap at its normal price, because it's income for both of you.

Join Exchange of Services free and list the services you offer.

Frequently asked questions

Who has to use Making Tax Digital from April 2027?

Sole traders and landlords whose combined self-employment and property turnover on their 2025/26 tax return was more than £30,000, unless they're exempt. From 6 April 2027 they'll need to keep digital records and send quarterly updates through compatible software, or from 1 April if their accounts run to 31 March.

Is the Making Tax Digital threshold based on profit or turnover?

It's turnover. Qualifying income is your self-employment and property income before expenses, so a sole trader with £36,000 of sales and £10,000 of costs has £26,000 profit but is still over the £30,000 threshold for April 2027.

Do I combine self-employed and rental income for Making Tax Digital?

Yes. Gross self-employment and property income are added together, so £27,000 of trading income and £25,000 of rent gives qualifying income of £52,000. Wages, dividends, pensions and your share of a partnership's profit don't count towards the test.

Can I join Making Tax Digital voluntarily before I have to?

Yes. If you're due in April 2027 you can sign up now for the current tax year and send any quarterly updates you've missed through your software. Volunteers aren't penalised for late quarterly updates, but they reach a £200 penalty at two points for late returns, not four.

Will there be a penalty soft landing for people joining in April 2027?

None has been announced. The first wave had no penalty points for late quarterly updates in 2026/27, but HMRC hasn't extended that to 2027/28. Each late submission earns a point, and four points within two years brings a £200 penalty.

Sources

1. Which?: 4 ways to prepare for Making Tax Digital for income tax which.co.uk
2. Low Incomes Tax Reform Group: When does Making Tax Digital start for me? litrg.org.uk
3. GOV.UK: Work out your qualifying income for Making Tax Digital for Income Tax gov.uk
4. HMRC: Quarterly updates with Making Tax Digital makingtaxdigital.campaign.gov.uk
5. Low Incomes Tax Reform Group: Making Tax Digital penalties litrg.org.uk
6. GOV.UK: Sign up for Making Tax Digital for Income Tax gov.uk
7. GOV.UK: Penalties for Making Tax Digital for Income Tax volunteers gov.uk
8. GOV.UK: Choose the right software for Making Tax Digital for Income Tax gov.uk