Updated on 26 June 2026

Making Tax Digital for the Self-employed

This guidance looks at some specific areas you need to consider if you are self-employed and reporting your self-employment income and expenses under Making Tax Digital. It is important to note that the actual tax rules for calculating profits from self-employment are not changing under Making Tax Digital, other than for childminders (see our Childminders section below).

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What does Making Tax Digital mean for self-employed individuals?

If you are self-employed and your gross income (also known as qualifying income) from self-employment breaches the relevant Making Tax Digital threshold then you must use Making Tax Digital software to record your income and expenses and file quarterly updates to HMRC. If you are self-employed and receive property income, the annual gross income figure applies to total gross income from both sources. 

Please note, self-employed income for these purposes means sole-trade income only, not income from a business partnership. Our page, Who does Making Tax Digital apply to? has more detailed information on what is included in qualifying income . 

Calculating gross income

We explain what gross income is when you are self-employed under the heading, Total income, in our Calculating self-employed profits section.

Example – calculating annual gross income

Charlie is a self-employed painter and decorator. The self-employed section of his most recent tax returns show the following:

  2024/25 2025/26
  £ £
Gross income 42,320 39,257
Expenses 27,622 16,411
Net profit 14,698 22,846

Charlie has gross income from self-employment of £42,320 on his 2024/25 tax return and £39,257 on his 2025/26 tax return. Therefore, as explained in our guidance When does Making Tax Digital start for me?, as Charlie breaches the Making Tax Digital threshold of £30,000 for the 2025/26 tax year he will have to follow the Making Tax Digital rules from April 2027. 

When working out your gross income from self-employment, remember that if any deductions are made from the income before you receive it, your gross income amount is the amount before the deductions are made. To see how this works, see the example below.

Example – gross income when self-employed

Yani is self-employed as a cycle delivery rider. He receives regular income payments from the platform he works through, after they deduct their charges. In March 2026, £1,300 was paid into his bank account. This was after fees of £200 were deducted by the platform before he was paid. His actual earnings were as follows:

  • Earnings: £1,500
  • Platform fees: £200
  • Received in bank: £1,300 

Yani’s gross income is £1,500. The platform fees of £200 are a business expense to be claimed in his self-employed accounts in due course. Yani should add his gross income of £1,500 to any other self-employment or property income when considering if he should be joining Making Tax Digital. 

Construction industry scheme (CIS)

If you are self-employed in the construction sector, then you may have tax withheld under the Construction industry scheme (CIS).

When calculating your self-employment income, you will need to add back any withholding tax to the payment received from the contractor to arrive at your gross income. Please note that if you are registered under CIS but have gross payments status then there should be no tax withheld. 

Example – calculating gross income under the CIS 

Joe is a construction worker who is not registered as a sub-contractor under the CIS. This means that his contractor must deduct (withhold) tax at 30% each time he is paid for his services. At the end of the tax year, Joe calculates that he has been paid £18,500 for his work as a subcontractor. Joe needs to work out what his gross income is by looking at his ‘pay and deduction statements’ (PDS) to see what tax has been withheld under CIS.

Joe works out that the tax withheld for the tax year totals £7,928. This means that Joe’s total gross income will be £26,428 (which is £18,500 plus £7,928). Joe should add any other gross self-employment income (and property income if he has any) to this to see when he must use Making Tax Digital.

We understand that tax deducted (withheld) under the CIS will be prepopulated as part of the Making Tax Digital end of year tax return, based on the information the contractor submits to HMRC. See our guidance on our page End of year tax returns under Making Tax Digital. 

Cash basis for preparing accounts

As part of reporting under Making Tax Digital your software will ask if you are using the cash basis or the traditional (accruals) basis to prepare your accounts. Our detailed guidance explains more about the cash basis and traditional accounting (accruals) basis but the default position is that you prepare your accounts using the cash basis unless you are not allowed to use the cash basis or choose to elect not to do so.

It is important to consider which accounting basis you want to use as that will affect when you enter the details of your income and expenses from self-employment in your digital records. If you use software that connects to your bank account, then it is most likely you will be using the cash basis when reporting your income and expenses.

Gross income when VAT registered

If you are VAT registered and using the cash basis, you can choose to report your income or expenses either excluding or including VAT. If you are recording your income including VAT, then that will increase your gross income by the output (sales) VAT and so you may exceed one of the Making Tax Digital thresholds sooner than if you recorded your sales excluding VAT. We cover the Making Tax Digital start dates on our page, When does Making Tax Digital start for me?.

If you are VAT registered and using the Flat Rate Scheme (FRS) then you may include your output (sales) VAT within your sales/ turnover figure on your tax return (and the FRS VAT due as an expense). This will increase your gross income by the output (sales) VAT. Therefore you may want to consider calculating your turnover net of the FRS VAT due instead, as shown in HMRC’s Business Income Manual so you do not exceed one of the Making Tax Digital thresholds just because of the way you are accounting for the FRS VAT.

Self-employment expenses

As explained above, although Making Tax Digital is a significant change to the way that some self-employed people will need to report their taxable income and expenses to HMRC, the actual tax rules for calculating self-employment profit remain unchanged other than for childminders (see our heading Childminders for more information). Here we look at some specific tax rules which may affect how you report your expenses under Making Tax Digital.

Simplified expenses

We explain how the simplified expense rules work on our page, Business expenses: allowable for tax. Under Making Tax Digital, if you know at the start of the tax year that you will be using one or more of the simplified expenses then you should not include the actual expense as part of your digital records or quarterly updates and instead include the simplified expense as an adjustment to your tax return. 

If you are uncertain about whether you will use a simplified expense method or the actual expense in your accounts and so will decide when you do your end of year tax return then you should record the actual expense within your digital records and as part of your quarterly updates. If you decide to use the simplified expenses rules you can either amend your quarterly updates or put through an end of year adjustment when finalising your tax return.

Trading allowance

We explain more about using the £1,000 trading allowance instead of actual business expenses on our Trading allowance page. 

Under Making Tax Digital, if you know that you will definitely have expenses of £1,000 or less for the entire tax year, then you may decide not to keep digital records for your expenses (and so not include them in your quarterly updates) and instead claim the £1,000 partial relief trading allowance on your tax return. 

However, even if you usually have very low expenses, it can be hard to predict in advance whether you will have expenses of less than £1,000 over the whole tax year especially if an unexpected cost arises, such as needing to replace a broken laptop. In which case, it may be prudent to include all your expenses in your digital records and then make an adjustment at the end of the tax year if it is beneficial to use partial relief trading allowance instead. 

We understand that tax deducted (withheld) under the CIS will be prepopulated as part of the Making Tax Digital end of year tax return, based on the information the contractor submits to HMRC. See our guidance on our page End of year tax returns under Making Tax Digital. 

Cash basis for preparing accounts

As part of reporting under Making Tax Digital your software will ask if you are using the cash basis or the traditional (accruals) basis to prepare your accounts. Our detailed guidance explains more about the cash basis and traditional accounting (accruals) basis but the default position is that you prepare your accounts using the cash basis unless you are not allowed to use the cash basis or choose to elect not to do so.

It is important to consider which accounting basis you want to use as that will affect when you enter the details of your income and expenses from self-employment in your digital records. If you use software that connects to your bank account, then it is most likely you will be using the cash basis when reporting your income and expenses.

Gross income when VAT registered

If you are VAT registered and using the cash basis, you can choose to report your income or expenses either excluding or including VAT. If you are recording your income including VAT, then that will increase your gross income by the output (sales) VAT and so you may exceed one of the Making Tax Digital thresholds sooner than if you recorded your sales excluding VAT. We cover the Making Tax Digital start dates on our page, When does Making Tax Digital start for me?.

If you are VAT registered and using the Flat Rate Scheme (FRS) then you may include your output (sales) VAT within your sales/ turnover figure on your tax return (and the FRS VAT due as an expense). This will increase your gross income by the output (sales) VAT. Therefore you may want to consider calculating your turnover net of the FRS VAT due instead, as shown in HMRC’s Business Income Manual so you do not exceed one of the Making Tax Digital thresholds just because of the way you are accounting for the FRS VAT.

Self-employment expenses

As explained above, although Making Tax Digital is a significant change to the way that some self-employed people will need to report their taxable income and expenses to HMRC, the actual tax rules for calculating self-employment profit remain unchanged other than for childminders (see our heading Childminders for more information). Here we look at some specific tax rules which may affect how you report your expenses under Making Tax Digital.

Simplified expenses

We explain how the simplified expense rules work on our page, Business expenses: allowable for tax. Under Making Tax Digital, if you know at the start of the tax year that you will be using one or more of the simplified expenses then you should not include the actual expense as part of your digital records or quarterly updates and instead include the simplified expense as an adjustment to your tax return. 

If you are uncertain about whether you will use a simplified expense method or the actual expense in your accounts and so will decide when you do your end of year tax return then you should record the actual expense within your digital records and as part of your quarterly updates. If you decide to use the simplified expenses rules you can either amend your quarterly updates or put through an end of year adjustment when finalising your tax return.

Trading allowance

We explain more about using the £1,000 trading allowance instead of actual business expenses on our Trading allowance page. 

Under Making Tax Digital, if you know that you will definitely have expenses of £1,000 or less for the entire tax year, then you may decide not to keep digital records for your expenses (and so not include them in your quarterly updates) and instead claim the £1,000 partial relief trading allowance on your tax return. 

However, even if you usually have very low expenses, it can be hard to predict in advance whether you will have expenses of less than £1,000 over the whole tax year especially if an unexpected cost arises, such as needing to replace a broken laptop. In which case, it may be prudent to include all your expenses in your digital records and then make an adjustment at the end of the tax year if it is beneficial to use partial relief trading allowance instead. 

Consolidated expenses (also called 3-line accounts)

If your gross income for each self-employment is below the VAT registration threshold then you can choose to report your total expenses as a single figure, rather than breaking it down into the sub-categories shown in your software. If you decide to record your expenses as consolidated expenses this might affect how you keep digital records and your quarterly updates. We cover this in more detail in the consolidated expenses section on our page, Record keeping and quarterly updates for Making Tax Digital.

Private use adjustments

Some expenses might not have been incurred ‘wholly and exclusively’ for the business as there may be a part which relates to private/personal use. For example, a mobile phone is likely to be used for both business and private calls. This is explained in more detail on our page, Calculating self-employed profits. 

If you have some expenses which contain an element of private usage, then you will need to make an adjustment to account for this non-business element as part of the Making Tax Digital process, in the same way as you would do in self assessment. You may want to do this as part of your digital records and quarterly updates or as an end of tax year adjustment on your tax return.

Childminders

The introduction of Making Tax Digital for income tax means the special tax rules childminders can use when working out their self-employed expenses no longer apply to childminders who must use the Making Tax Digital reporting rules. 

For some childminders this is likely to be a significant change to the way they prepare their business accounts and tax return. This section of our guidance explains how to calculate some expenses that are particularly relevant to childminders using the normal tax rules for the self-employed instead of the special tax rules available to those who are not required to use Making Tax Digital (which we cover in our Childminders page).

Below, we explain how the normal tax rules are applied in the following four main areas: 

  • Wear and tear of household items
  • Household costs
  • Food and drink
  • Keeping records
Wear and tear of household items

If you are a childminder using Making Tax Digital you must claim for the business proportion of household items, including furniture and carpets. You can no longer use the 10% wear and tear allowance instead. It is not possible to claim for any personal time in repairing or redecorating equipment or areas used for your childminding services.

Example – wear and tear of household items if using Making Tax Digital

Bernie needs to replace her kitchen table and chairs – the cost of the furniture is £650. Bernie considers that for her childminding business she uses the table and chairs 40% of the time, with the remaining 60% for her and her family’s personal use. 

This means that if Bernie uses the cash basis, she can claim this as a business expense of £260 (£650 x 40%) and include it on her digital records as part of her quarterly updates. If Bernie elects to use traditional accounting (accruals basis) instead then she can claim capital allowances and include this as an adjustment in her end of year return.

It is important to consider if the use of household equipment changes over time. For example, it may be the case that you increase the amount of time you provide your childminding services, so you need to claim an increased amount of the cost, because the proportion of business use compared to private use has increased.

Household costs

If you are a childminder using Making Tax Digital, you can no longer claim a fixed percentage of your household costs based on the number of hours you work (which was the case before Making Tax Digital – see our Childminders guidance page). Instead, you can claim the business element of household costs.

These costs include council tax (domestic rates in Northern Ireland), water rates, gas and electricity, mortgage interest (but not any capital repayment elements) and rent.

You may need to work out a reasonable proportion of your total costs which relate to your childminding business. One way you can do this is to consider the number of rooms in your house you use for your business as a proportion of the total number of rooms within your property. Another method would be to consider the number of hours you use your home for your business compared to non-business activities. See our guidance under the heading Rent, rates, power and insurance costs on our webpage, Business expenses: allowable for tax for more information.

Whichever method you decide to use you should make sure that you keep a record of how you calculated your household costs. Over time, you may want to change your method of apportioning the business element of your household costs as there may be a more appropriate method to do so.

It is our understanding that a garden used for a childminding business should not be included as a room when allocating business household costs. However, where there are costs associated with the garden then these costs or a proportion of these costs should be included.

Example – use of garden when using Making Tax Digital

Alex uses her own home for her childminding business. In her garden she has play equipment for the children she looks after, and Alex can claim the cost of the play equipment as a business expense (assuming she is using the cash basis).

Alex needs to repair her patio. As this is used by both her personally and in her business, she should allocate a reasonable amount of the repair cost as a business expense. She also hires a gardener each month for general maintenance, again Alex can consider how much she uses the garden for her childminding business and allocate a reasonable proportion as a business expense.

Food and drink

Most childminders will provide food and drink to children they look after. This actual cost will be classed as a business expense and should be tax-deductible.

If you shop for food for the children you care for at the same time as buying food and drink for you and your family then you will need to apportion the cost between business use and personal use. It can be difficult to calculate the exact cost of this business expense so HMRC say you can claim a reasonable proportion of the food cost for the children you look after. There are different ways you can calculate a reasonable proportion, these could include:

  • Calculating your food costs in weeks when you are not working (for example in school holidays) and then compare them to food costs on a typical week when you are childminding. The difference should be a reasonable estimate of the business cost of food and drink per week.
  • Considering the cost of a meal and allocating it between personal use (family) and business use (children you are looking after) then using that split across all joint meals. So, if you know that a meal you prepared cost £8.00 and that about 25% will be eaten by the children then you would include a cost of £2.00.
Keeping records

If you are a childminder using Making Tax Digital then the relaxation for keeping receipts for costs below £10 does not apply. This means that as far as possible you should obtain and keep receipts for all business expenses. Our guidance on Business record keeping covers what records you need to keep and how long for. 

However, there are some business expenses that it may not be possible to get an invoice or receipt for, such as playgroups, duck food, informal activities in libraries and museums etc. In such cases you will need to provide the following information as part of your digital records:

  • Date of the transaction
  • Who you paid (for example playgroup/ ice cream van)
  • Amount
  • Brief description of the cost

You still need to do this even if you can use consolidated accounting also known as ‘3-line accounts’ (see heading Consolidated expenses above).

You may find it helpful to keep a receipts book with you on outings as part of your childminding duties which you can use as a cash book to keep a note of business transactions.

When keeping digital records for Making Tax Digital, HMRC have confirmed that as long as there is sufficient detail about the cash expense, such as from a cashbook or notes made at the time of the transaction, then you can combine expenses from multiple days into one digital record.

Example – keeping records when using Making Tax Digital

Michelle is a childminder and owns several rental properties. Her gross income from her rental income and self-employment is more than £50,000 so she must use Making Tax Digital from April 2026. Michelle takes the children she childminds on an outing and spends the following during the day:

  • Car parking £3.50
  • Ice creams £4.00
  • Duck food £1.50
  • Soft play session £17.00

At the end of the day, Michelle considers her business expenses that she must include as a digital record. She has a receipt for the soft play session but paid cash for car parking, ice creams and duck food and has no receipts for these individual costs. Michelle writes some entries in her receipts book to later include as part of her digital records – she notes the date of the outing, the park she visited, and the amounts she spent on each transaction and who she paid (such as car park, park ranger for duck food etc.).

The entries in her digital records may look something like this:

1 June 2026  Trip to children’s play-park-miscellaneous expenses – car parking, ice creams and duck food £9.00
1 June 2026 Soft play expenses £17.00

There is more information the rules for childminders who need to use Making Tax Digital on GOV.UK and in their Business income manual.

Ways of allocating household costs are explained within the Business income manual. There is also more information on fixed costs and running costs within the Business income manual. 

Starting a new self-employment

It may be the case that you are already in Making Tax Digital and then start a new self-employment trade. 

If you are already self-employed but are starting a new self-employment trade, then you may find our tax guidance on multiple trades helpful.

Each self-employment trade must keep separate digital records and submit separate quarterly updates.

We cover what to do if you are new to self-employment (so are in Making Tax Digital because of your property income) in our self-employment guide.

What to do next

You should consider how you currently keep your business records and what type of self-employment business you run as this may affect what software you choose for Making Tax Digital. For example, if you are self-employed in the construction industry then you need to choose software that covers the construction industry scheme (CIS). See our guidance on Choosing Making Tax Digital software for more information.

You should also consider how many self-employed businesses you have and what information you will need to calculate your gross income from each trade. For example, whether you need extra information from your contractor if you have tax withheld under the CIS or whether you need to look at your online platform accounts to calculate what platform fees and commission have been deducted from your online trading.

Frequently asked questions

Do I need to be registered for VAT to follow the Making Tax Digital rules?

No, you don’t need to be VAT registered to be in scope of Making Tax Digital for income tax. We cover VAT registration on our page VAT when running a business and when you must use Making Tax Digital on our page When does Making Tax Digital start for me?.

Do I need a separate business bank account for Making Tax Digital?

No, you don’t need a separate business bank account for keeping  digital records and your quarterly updates. However, depending on what Making Tax Digital software you choose it may make the process easier to have a separate bank account for your business, see our guidance on Choosing Making Tax Digital software for more information.

What if I don’t know whether I want to use the cash basis or traditional (accruals) accounting until the end of the tax year?

You will have to decide whether to use the cash basis or traditional (accruals) accounting when keeping your digital records and for your quarterly updates. However, if you change your mind, you can make an adjustment to your tax return at the end of the tax year. 

Do I need to use Making Tax Digital if my self-employment is making a loss?

Yes, you may need to use Making Tax Digital – you need to look at your gross income (sales or turnover) and not profits or losses when deciding if you need to use Making Tax Digital. If your gross income is above the Making Tax Digital threshold then you will need to follow the Making Tax Digital rules from the relevant tax year unless you are exempt.

HMRC receive my tax information through the Construction Industry Scheme (CIS), do I still need to use Making Tax Digital?

Yes, you may still need to use Making Tax Digital. We explain when you may need to do so in our page, When does Making Tax Digital start for me?. However, we understand it is HMRC’s intention that your CIS information should be prepopulated as part of your year-end tax return.

I use online platforms to run my business, I know they send a report each year to HMRC. Do I still need to use Making Tax Digital?

Yes, you may still need to use Making Tax Digital. We explain when you may need to do so on our page, When does Making Tax Digital start for me?. The statements that online platforms provide to HMRC about some sellers’ activities do not contain sufficient information to act as a tax return. They are also for a calendar year and not a tax year. You can read more about these statements on our page, Seller information statements. 

I am planning to start a new business as a sole trader – does Making Tax Digital affect me?

You need to use Making Tax Digital as a sole trader when your total gross income from self-employment and property reaches a certain threshold. We explain how this is worked out when you start a new business in more detail on our page, When does Making Tax Digital start for me?. 

If you are already in Making Tax Digital, then you must also keep  digital records and quarterly updates for your new business. 

I am planning to stop my self-employment, do I need to use Making Tax Digital if I explain my plans to HMRC?

Yes, if your gross income is above the relevant threshold, unless HMRC have agreed you are exempt from Making Tax Digital. This is explained in more detail in our page When does Making Tax Digital start for me?. We also have information on when you can stop using Making Tax Digital.

I have transitional profits under Basis Period Reform, what do I do with these extra profits under Making tax Digital?

You will need to include any transitional profits being spread as part of Basis Period Reform as part of your end of year adjustments to your tax return.

I am VAT registered and my VAT returns are for different quarterly periods to the quarterly update periods for Making Tax Digital. Can I do anything about this?

Yes. You will firstly need to make a calendar quarters election for your quarterly updates and then you can change your VAT quarters to become the same as the quarterly update periods. Once the change is made, your VAT returns will be due for the three months ended 31 March, 30 June, 30 September and 31 December each year. You should be able to change your VAT quarters via your VAT online account or by calling the VAT helpline.

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