If your freelance work is still a side hustle, MTD may sound like a rule for bigger businesses. Sometimes it is. But growing side income can still bring tax responsibilities, so it is worth understanding the basics early.
Current GOV.UK/HMRC position: MTD for Income Tax is being phased in. The current thresholds are over £50,000 from 6 April 2026, over £30,000 from 6 April 2027, and over £20,000 from 6 April 2028, based on qualifying income for the relevant tax years. Rules can change, so always check the latest official GOV.UK/HMRC guidance.
For context, you may also want to read Tax Basics for UK Freelancers, Best Accounting Software for UK Freelancers and the Sole Trader Expenses Guide.
A side hustle can still be self-employment
A side hustle is not a special tax category. Depending on what you do and how much you earn, it may be treated as self-employment, trading income, casual income or something else. If you need to report it through Self Assessment and your qualifying income reaches an MTD threshold, Making Tax Digital for Income Tax may become relevant.
This does not mean every side hustle is caught. Someone selling a few personal items occasionally is in a very different position from someone regularly invoicing clients, selling services, renting property or running an online shop. If you are unsure whether your activity counts as trading or whether you need Self Assessment, check GOV.UK guidance.
The MTD thresholds still matter
The current MTD for Income Tax phases are based on qualifying income: over £50,000 for the 2024 to 2025 tax year means MTD from 6 April 2026, over £30,000 for the 2025 to 2026 tax year means MTD from 6 April 2027, and over £20,000 for the 2026 to 2027 tax year means MTD from 6 April 2028.
For side-hustlers, the £20,000 phase may be the one that brings the topic closer. Remember that this is qualifying income, not necessarily profit. If your side hustle brings in £24,000 before costs, you should not assume you are below the threshold just because your profit is lower after buying materials, software or advertising.
When a small side hustle grows
Growth is good, but it can make admin more important. If you begin with occasional work, you might track payments in a simple spreadsheet. As income rises, you may need clearer invoices, a separate bank account, receipt storage and a plan for tax set-asides. These habits help whether or not MTD applies yet.
A growing side hustle can also create timing problems. You might earn above a threshold before you feel like you run a “proper business”. HMRC looks at the figures and rules, not how confident you feel. That is why it is useful to review your income during the year rather than waiting until January.
Practical preparation for side-hustlers
Keep a list of every payment received, who paid you, what it was for and the date. Keep receipts for costs connected to the work. Separate business transactions from personal spending as much as possible. If you invoice clients, use a consistent invoice number system and keep copies.
If your side income is near a threshold, read the MTD checklist and software guide. You may not need to change everything immediately, but understanding your options early makes the change less intimidating.
FAQs
Does PAYE salary count towards MTD thresholds?
The MTD qualifying income test focuses on self-employment and property income, but check your wider Self Assessment position if you have mixed income.
Do I need MTD if my side hustle earns under £1,000?
Different trading allowance and reporting rules may be relevant; check GOV.UK for your own position.
What if I only freelance for a few months?
You still need to consider whether the income is reportable and how HMRC measures qualifying income for the relevant tax year.
Side hustle warning signs
MTD becomes more relevant when your side hustle stops being occasional and starts looking like a regular business. Warning signs include repeat clients, regular invoices, paid advertising, stock or equipment purchases, a separate brand name, platform sales, property income, or income that is rising towards the thresholds. None of these signs automatically answers the tax question, but they mean you should pay closer attention.
If your side hustle is growing, do not wait until you feel confident enough to call yourself self-employed. Tax rules can apply before your business feels polished. A simple spreadsheet, invoice folder and receipt habit can prevent confusion while you decide whether you need accounting software.
What employed people should remember
Having a PAYE job does not make side income invisible. Your salary may already be taxed through payroll, but freelance or trading income can still create Self Assessment duties. If the side hustle grows enough to reach MTD qualifying income thresholds, you need to look at the MTD rules as well as your ordinary employment tax position.
More Making Tax Digital guides
- Making Tax Digital: What UK Freelancers Need to Know
- When Does Making Tax Digital Start for Sole Traders?
- Making Tax Digital Income Thresholds Explained
- Best Making Tax Digital Software for Freelancers
- Making Tax Digital Checklist for Freelancers
- Making Tax Digital vs Self Assessment
- Making Tax Digital Penalties: What Freelancers Should Know
Related freelancer money guides
- Tax Basics for UK Freelancers
- Best Accounting Software for UK Freelancers
- Sole Trader Expenses Guide
- Existing Making Tax Digital guide
Disclaimer: Freelance Wallet UK provides general information only. It is not financial, tax or legal advice. Always check official HMRC/GOV.UK guidance or speak to a qualified professional for your own situation.