Side Hustle or New Sole Trader? Does Making Tax Digital (MTD) Apply to You?

If you have recently started working for yourself, or you sell on Etsy, eBay or Vinted alongside a full-time job, you have probably seen the words "Making Tax Digital" and wondered whether you now need special software and quarterly tax returns. For most people at the start of their business journey, the answer is no, not yet. Making Tax Digital for Income Tax only applies once your sales go over a threshold, and that threshold is still well above what most new businesses and side hustles make. This guide explains in plain English who it applies to, when, and the one figure you need to keep an eye on as your business grows.

Chloe works full time in an office and started making jewellery to sell on Etsy in 2025. In 2025/26 her sales came to £6,200, and after materials, packaging, postage and Etsy fees her profit was £2,900. When a friend mentioned Making Tax Digital, she worried she would need to buy software and send HMRC returns every three months. She does not. Her sales are nowhere near the threshold, and her salary does not count towards it. She keeps her records, files a normal Self Assessment return and carries on. This article explains why, and what would need to change before it applied to her.

If You Are Just Starting Out, Here Is What Changes for You

For most new sole traders and side hustlers, the honest answer is: nothing, for now.

You still file a normal Self Assessment return once a year, by 31 January, exactly as before.

You do not need Making Tax Digital software. A well-organised spreadsheet is a perfectly good way to keep your records and work out your tax.

You do not send HMRC quarterly updates. Those only start once your sales pass the threshold.

Your job does not count towards the threshold. If you earn £35,000 in your day job and £4,000 from your side hustle, your figure for Making Tax Digital is £4,000. Only income from self-employment and property counts.

What does matter, from your very first sale, is keeping good records. They are what let you file your Self Assessment return with confidence, claim every expense you are entitled to, and see clearly when your business is starting to grow towards the thresholds. If you are not sure whether you need to file a return at all, our guide to whether you owe tax on your Vinted sales explains the £1,000 Trading Allowance and how to tell whether your selling counts as a business.

When It Does Apply: The Three Stages

Making Tax Digital for Income Tax is arriving in stages. Each stage is decided by the sales on an earlier tax return.

The dates can look confusing because each threshold is measured on a return from an earlier year. The £50,000 test, for example, used 2024/25 sales to decide who started in April 2026. HMRC reviews each Self Assessment return and writes to people whose sales are over the threshold, but the rule applies whether or not the letter arrives, so it is worth knowing your own figure.

Sales, Not Profit: Why a Growing Side Hustle Can Get There Sooner

The threshold is based on what HMRC calls qualifying income: your total income from self-employment and property before expenses. In plain terms, your sales.

That matters more than people expect. If you resell clothes, make products with expensive materials or pass most of what you receive on to suppliers, your sales can be several times your profit. A reseller who sells £24,000 of stock a year but paid £14,000 for it makes a profit of around £10,000, yet is over the £20,000 threshold.

What counts: sales from self-employment, including online selling as a business on Vinted, eBay, Etsy, Depop or Amazon and freelance work, added together across every platform and business you run, plus your share of any rent from property.

What does not count: your PAYE salary or wages, the State Pension, private pensions, dividends and your share of partnership profit as a partner. Selling your own unwanted belongings is not a business, so it does not count either.

Three Businesses, Three Different Answers

Chloe is where most new sole traders and side hustlers are. Her sales are well under £20,000, and her salary does not count, so nothing changes for her.

Tom has a job too, and his eBay profit is only £6,400. But he resells, so his sales are much higher than his profit. They grew to an expected £22,500 in 2026/27, which is over £20,000, so he is likely to join from April 2028. He will only know for sure if he keeps an accurate running total of his sales this year.

Sarah went full time with her candle business and her sales passed £30,000 in 2025/26, so she joins from April 2027, even though her profit is under £15,000.

What Making Tax Digital Involves, If You Ever Reach It

It is less dramatic than it sounds. It does not mean paying tax every quarter, and it does not mean sending HMRC every receipt.

Digital records. You keep your income and expenses in HMRC-recognised software, or in a spreadsheet linked to HMRC-recognised bridging software that sends the figures for you.

Four short updates a year. Each one is a summary of your totals in each income and expense category for the year so far, due by 7 August, 7 November, 7 February and 7 May. HMRC describes them as summaries, not tax returns, and mistakes can be corrected in the next update.

A tax return at the end of the year, sent through the same software.

The same payment dates as now: 31 January and 31 July. Our guide to payment on account explains how those payments work.

What to Do Now

Step 1: Keep a running total of your sales for the tax year. At the end of each month, add up your sales for the tax year so far, starting from 6 April, before expenses and across every platform and business. It takes a few minutes, and it is the one figure that tells you whether Making Tax Digital will ever affect you.

Step 2: Keep good records from your first sale. Record every sale and every expense with the date, what it was and the amount, and keep receipts. Good records are what let you file your Self Assessment return with confidence and claim everything you are entitled to. Our guide to expenses sole traders commonly miss covers the costs new businesses most often forget.

Chloe's Plan

Chloe registered for Self Assessment before the 5 October deadline, but she has not filed her 2025/26 return yet. She has until 31 January 2027, and she would rather have it done well before the January rush.

Her first job is to pull together the figures her return needs: her Etsy sales for 6 April 2025 to 5 April 2026, and her costs for the same period, including materials, packaging, postage and Etsy's fees. She is using the 2025/26 Bookkeeping and Accounting Template to bring everything together in one place. It works out her profit and her tax, so when she sits down to file, she can simply copy her figures across, any time before the 31 January deadline.

Those same figures confirm that Making Tax Digital is a long way off. She is not buying software or changing how she works. What she has changed is one small habit: at the end of each month she checks her total Etsy sales for the 2026/27 tax year so far, not just her profit. Her expected sales for this year are about £7,500. If her shop takes off and that running total starts heading towards £15,000, she will know well in advance and can plan calmly. Until then, her spreadsheet and a normal Self Assessment return are all she needs.

The Most Important Thing

If you are just starting out, or you run a side hustle alongside a job, Making Tax Digital is very unlikely to affect you yet. Your salary does not count, and the threshold is £20,000 of sales at its lowest. What does matter is keeping good records from day one, so you can file your return with confidence and see clearly when your business is growing.

Know your sales figure. It is the one number that tells you whether any of this will ever apply to you.

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