If you run a sole trader business and also earn money from renting out property, Making Tax Digital can look slightly confusing.
Do you have two separate MTD thresholds? Do your rental income and business income get reported together? And do you need a quarterly update for each property?
The basic rule is actually quite simple:
HMRC combines your self-employment and property income when deciding whether MTD applies to you — but the income sources are kept separate when you report them.
For Making Tax Digital for Income Tax, HMRC looks at your qualifying income.
This means your total gross income before expenses from:
If you have both, the figures are added together.
For example:
| Income source | Gross income |
|---|---|
| Sole trader business | £28,000 |
| Rental property | £24,000 |
| Qualifying income | £52,000 |
Your qualifying income in this example is £52,000 — even though neither source is above £50,000 on its own.
If those figures appeared on your 2024/25 Self Assessment return, you would have needed to start using MTD for Income Tax from 6 April 2026.
MTD for Income Tax is being introduced in stages:
| Qualifying income | Tax year used to assess it | MTD starts |
|---|---|---|
| More than £50,000 | 2024/25 | 6 April 2026 |
| More than £30,000 | 2025/26 | 6 April 2027 |
| More than £20,000 | 2026/27 | 6 April 2028 |
The important word here is combined.
You could have £20,000 of sole trader turnover and £15,000 of rental income. That gives you £35,000 of qualifying income, which could bring you into MTD from April 2027 based on your 2025/26 tax return.
Another common mistake is looking at your profit after expenses.
MTD thresholds are based on your gross qualifying income before expenses, not your taxable profit.
So if your business receives £35,000 but has £15,000 of expenses, HMRC still starts with the £35,000 income figure when working out your qualifying income.
The same principle applies to property income.
Your salary from employment does not count towards the MTD qualifying income threshold.
Neither do income sources such as:
These may still need to appear on your tax return, but they are not added to your self-employment and property income when HMRC checks the MTD threshold.
For example, £35,000 from PAYE plus £25,000 from a sole trader business does not give you £60,000 of MTD qualifying income. For this purpose, your qualifying income would be £25,000.
This is where things change.
Although your sole trader and property income are combined to determine whether MTD applies, HMRC requires you to keep digital records for the different businesses and send quarterly updates for each relevant business.
So if you have:
you would keep the records separately and send quarterly information for both.
Your bookkeeping should therefore clearly distinguish between, for example:
Sole trader records
and:
Property records
Compatible MTD software uses these digital records to create the totals sent in your quarterly updates.
You do not normally need a separate quarterly update for every UK property.
HMRC treats one or more UK properties owned by the same person as a single UK property business.
So if you rent out three UK properties, the records for those properties are normally combined into your UK property business and included in one property quarterly update.
That is different from having multiple sole trader businesses. If, for example, you run an electrical business and a separate driving instructor business, HMRC requires separate digital records and quarterly updates for each sole trade.
If a property is jointly owned, it is your share of the property income that counts towards your qualifying income.
For example, if a jointly owned property generates £50,000 of rental income and you are entitled to half, £25,000 would normally count towards your qualifying income.
HMRC also has some simplified digital record-keeping options for jointly let properties.
No.
A quarterly update is a summary of your digital records — it is not a tax return.
MTD does not, by itself, turn Income Tax into a quarterly tax payment system. You continue to submit your tax return and pay the tax due under the normal Self Assessment timetable.
The quarterly updates simply give HMRC regular information about your business and property income and expenses during the year.
After your quarterly updates, you still need to complete your tax return using compatible software.
This is where you check your full-year figures, make any necessary tax adjustments, claim relevant allowances or reliefs and add other income that was not included in your quarterly updates.
So if you are both a sole trader and a landlord, the easiest way to think about MTD is:
Your income is combined to decide whether MTD applies. Your records remain separate. Everything comes together again in your tax return.
Keeping two types of income does not have to mean keeping two completely separate bookkeeping systems.
Kletta is built for UK sole traders, and Kletta Duo also supports property income and expenses. This makes it possible to keep your sole trader bookkeeping and rental activity organised while staying ready for MTD reporting.
If you are moving from spreadsheets, paper receipts or separate systems, you can also read our guide to MTD for landlords and digital record keeping.
Run a sole trade and rent out property? Keep both organised and ready for MTD with Kletta.