Making Tax Digital for sole traders: who, when and what to do

Making Tax Digital for Income Tax changes how sole traders and landlords report to HMRC. Instead of one tax return a year, you keep digital records and send HMRC a short update every three months, then finish the year off as before.

Who has to join, and when

It depends on your qualifying income on an earlier tax return:

Some people are exempt, for example if you can’t use a computer or the internet. HMRC lists the reasons on gov.uk.

What counts as qualifying income

Your income from self-employment and property, added together, before taking off any expenses. It’s your turnover, not your profit. Wages from a job don’t count. So a plumber who takes £35,000 and spends £10,000 on parts has £35,000 of qualifying income.

The quarterly updates

Each update is a summary of your income and expenses for the quarter, sent from software that works with Making Tax Digital. For a tax year that starts on 6 April, the deadlines are:

You still finish the year with a final tax return by 31 January, and that’s still when the tax is due.

What to do now

1. Check your qualifying income on your last tax return.
2. If you’re over a threshold, sign up on gov.uk before your start date, or ask your accountant to.
3. Keep your income and expenses as you go, not in a shoebox, so each update is a few minutes’ work.

How Kev helps

Kev’s tax summary adds up your invoices, expenses and mileage for each quarter, using HMRC’s expense categories, and shows a rough guide to how much tax to put aside. Kev can’t send the updates to HMRC yet, so for now you copy the figures into your HMRC software or give them to your accountant.

Sources

• gov.uk: Find out if and when you need to use Making Tax Digital for Income Tax
• gov.uk: Work out your qualifying income