Making Tax Digital for sole traders
One rule decides almost everything here: HMRC counts what you invoiced, not what you kept.
A decorator invoices £60,000. Paint, van and materials take most of it and he keeps £25,000. Ask what he earns and he says twenty-five grand. HMRC says sixty — and he is in scope.
Trades most likely to be caught out
The gap between turnover and profit is widest where materials are a big share of the job, so these are the trades where the rule surprises people most:
- Construction and CIS subcontractors — your turnover is the invoiced amount before the 20% CIS deduction, not what reached your bank
- Building, plumbing, electrical, decorating — materials bought on behalf of clients still count as money in
- Anyone reselling — retail, market traders, online sellers, where cost of goods eats most of the turnover
- Couriers and drivers — fuel and vehicle costs come off after the test, not before
The two-year lag nobody expects
HMRC does not look at what you are earning now. It looks at the Self Assessment return you already filed:
| This return | Over | Means you start |
|---|---|---|
| 2024/25 | £50,000 | 06/04/2026 |
| 2025/26 | £30,000 | 06/04/2027 |
| 2026/27 | £20,000 | 06/04/2028 |
So a good year in 2024/25 puts you in from April 2026 even if trade has since gone quiet. And the threshold falls every year, which means being out today is not the same as staying out.
Small amounts that stay out
If your self-employment income was within the £1,000 trading allowance and you did not report it on your return, it is not part of the figure HMRC tests. Over that and it must be reported, so it counts in full.
Common questions
Do sole traders have to use Making Tax Digital?
If your turnover plus any property income is over the threshold, yes. It is turnover — everything you invoiced or took before deducting a single expense — not the profit you pay tax on.
My profit is under the threshold. Am I still in?
Probably. HMRC tests turnover. A trade invoicing £60,000 that nets £25,000 after materials, tools and van costs is assessed on £60,000, so it is in scope from April 2026 despite a profit less than half the threshold.
When exactly do I start?
It depends on a return you have already filed. Your 2024/25 return decides a 6 April 2026 start, your 2025/26 return decides April 2027, and your 2026/27 return decides April 2028. That is income earned up to two years before your obligations begin.
What if I am a CIS subcontractor?
Your turnover is what was invoiced before CIS deductions, not what landed in your bank after 20% was taken. Construction subcontractors are one of the groups most likely to under-estimate their qualifying income for exactly this reason.
Does my part-time job count?
No. Employment income taxed under PAYE is excluded entirely, however much it is. Only self-employment and property count.
What if I run my business through a limited company?
Then this does not apply to that income. A company files its own returns, and the salary and dividends you take from it are employment and investment income, which are both excluded.
Work out where you stand
Put your turnover into the checker. If you keep your books in a spreadsheet, you do not have to abandon it — bridging software submits from what you already have.
Tax Threshold gives information, not tax advice. A business that started or stopped mid-year, or one with an unusual accounting period, needs an accountant rather than a calculator.