MTD for Freelancers and the Self-Employed: A Plain-English Guide

Does MTD Apply to You?

MTD for Income Tax applies to self-employed sole traders whose qualifying income exceeds the relevant threshold:

• From 6 April 2026: mandatory if qualifying income exceeds £50,000
• From April 2027: mandatory if qualifying income exceeds £30,000
• From April 2028: mandatory if qualifying income exceeds £20,000

For sole traders, qualifying income means your gross self-employment turnover -- the total income you earn from your business before any expenses are deducted. If you also have UK property rental income, that is added to your self-employment turnover for the purpose of calculating whether you meet the threshold.

Important: Partnership income does not count as qualifying income for MTD purposes. If you operate partly through a partnership and partly as a sole trader, only your sole trader income is included in the calculation.

What Counts as Self-Employment Income?

For MTD purposes, self-employment income is any income you earn as a sole trader -- that is, running a business in your own name, not through a limited company or partnership.

This includes freelancers (writers, designers, photographers, consultants), contractors working outside IR35 on a self-employed basis, tradespeople, market traders, online sellers, and anyone else running a one-person business.

Not included in qualifying income for the threshold calculation:

• PAYE employment income (salary from an employer)
• Dividends from your own limited company
• Partnership profit shares
• Rental income from property you let (though this is added separately if it exists)

How Quarterly Updates Work for Sole Traders

Under MTD, you submit a summary of your business income and expenses to HMRC every quarter. These are not full tax returns -- they are running totals that give HMRC a picture of your trading activity throughout the year.

What a quarterly update includes:

• Your total business income for the quarter
• Your total allowable business expenses, broken down by category

Quarterly deadlines:

You submit these through your MTD-compatible software. The process typically takes minutes if your records are up to date -- you are simply submitting the totals from your digital records for the period.

Allowable Expenses: What Freelancers Can Claim

One of the most valuable parts of being self-employed is the ability to deduct allowable business expenses from your taxable income. Getting this right can significantly reduce your tax bill.

Common allowable expenses for freelancers:

• Office and equipment: Computer, monitor, phone, desk, and other equipment used for business. If used for both business and personal purposes, you can claim the business proportion.
• Software and subscriptions: Adobe Creative Suite, accounting software, project management tools, professional memberships -- any subscription used for business purposes.
• Home office: If you work from home, you can claim a proportion of household costs (heating, electricity, broadband) based on the number of rooms used and time worked. Alternatively, HMRC's simplified flat rate is £10, £18, or £26 per month depending on hours worked from home.
• Travel: Business travel costs including mileage (45p per mile for the first 10,000 miles in a car), public transport, and parking. Commuting to a regular place of work is not deductible.
• Professional fees: Accountancy fees, legal advice directly related to your business, and professional indemnity insurance.
• Marketing and advertising: Website costs, advertising spend, business cards, and promotional materials.
• Training: Courses and professional development directly relevant to your current work (not training for a new career).
• Clothing: Specialist or protective clothing required for work (not general clothing that could be worn outside work).

What you cannot claim:

• Personal expenses with no business purpose
• Client entertainment (HMRC does not allow a deduction for taking clients out)
• Fines and penalties
• Clothing that doubles as everyday wear

Simplified Expenses: A Quicker Option

For some expense categories, HMRC offers simplified flat-rate deductions rather than requiring you to calculate the precise business proportion. These are available for:

• Mileage: 45p per mile (first 10,000 miles), 25p per mile thereafter
• Home office: Flat rates based on monthly hours worked from home
• Living at your business premises: A fixed deduction for personal use of a property used as a business premises

Simplified expenses are optional. If your actual costs are higher than the flat rate, calculating the precise figure will give you a larger deduction. If you are unsure, use the HMRC simplified expenses checker on GOV.UK.

Digital Record-Keeping: What You Need

MTD requires you to keep digital records of your income and expenses. At a minimum, your records must capture:

• The date of each income receipt
• The amount received
• The date of each expense
• The amount spent
• The category of expense

Paper records alone are not acceptable under MTD. Your records must be in a digital format and digitally linked to your submission software. Options range from a well-organised spreadsheet to a dedicated app that imports transactions from your bank automatically.

Multiple Self-Employment Businesses

If you operate more than one self-employment business as a sole trader -- for example, you freelance as a graphic designer and also run an online shop -- each business is registered separately with HMRC under MTD. You submit quarterly updates for each business individually.

This is worth planning for at sign-up, as you will need to confirm the name and start date of each business when you register.

Year End: The Final Declaration

After four quarterly updates, you complete a Final Declaration by 31 January. This is where you confirm your business income, make any final adjustments (such as capital allowances on equipment), and declare any other income sources -- employment, dividends, savings interest -- alongside your self-employment profits.

The Final Declaration is the MTD equivalent of your annual Self Assessment return. Once submitted, HMRC calculates your total Income Tax and National Insurance liability.

How Taxd Makes MTD Simple for Freelancers

Taxd is designed to take the admin out of being self-employed. Whether you prefer to upload a spreadsheet each quarter or connect your bank account for automatic tracking, Taxd handles the submission to HMRC.

• Keptd smart tracking: Connect your bank account, and Keptd categorises your income and expenses automatically. When a quarterly deadline arrives, your update is ready in seconds.
• Bridging software: Prefer a spreadsheet? Upload your quarterly figures to Taxd and we handle the rest.
• Accountant support: If you have questions, UK-based accountants are available when you need them -- without the cost of a traditional accountancy firm.

Freelancer tax made simple -- with help when you need it. Start your free trial at taxd.co.uk.