Making Tax Digital with a side hustle
Plenty of people have a job andsomething on the side — freelancing, selling online, a bit of consulting, a rental. The question that trips everyone up is whether your salary counts toward Making Tax Digital. It doesn't. Here's how MTD actually works when you're both employed and self-employed.
Does your salary count? No.
This is the single most misunderstood point. The figure that decides whether you're mandated — your qualifying income — is your gross self-employment and property income only. Your employed salary, taxed through PAYE, is not part of it. So someone on a £45,000 salary with £6,000 of freelancing has £6,000 of qualifying income, not £51,000.
So when are you mandated?
When your side-hustle income — plus any rental income — clears a threshold on its own. It's phased in highest incomes first (April 2026 (£50k+), then April 2027 (£30k+), then April 2028 (£20k+)). If your self-employment and property income together is below the lowest figure (£20,000) you're not mandated yet, however large your salary. Check the exact dates on the deadlines & who's affected page.
What changes if you are
Only the self-employed side of your affairs moves to the new rhythm. In practice you'll:
- Keep digital records of your side-hustle income and expenses.
- Send quarterly updates for that income from compatible software.
- Submit a final declaration after the tax year — this is where your employment income, already taxed under PAYE, is brought back in alongside everything else.
Choosing software for a side hustle
A second income rarely needs full accounting software. If you just need to file, a bridging tool or a free option usually does the job — see the cheapest options and the tools that are genuinely free, or run the finder for the cheapest recognised tool that fits.
Common mistakes to avoid
- Adding your salary to your side-hustle income when checking the threshold — only the latter counts.
- Assuming that being employed makes you exempt — it doesn't, if the side income is over the line.
- Buying full accounting software for what is a straightforward second income.
- Forgetting the final declaration is where PAYE income and the rest of the picture come together.
Frequently asked questions
- Does my employed salary count toward the MTD threshold?
- No. Qualifying income is your gross self-employment and property income only. Your PAYE salary is not included when working out whether you're over the threshold — though it's still taxed as normal and is brought into your final declaration.
- I'm employed and self-employed — do I still have to do MTD?
- If your side-hustle income (plus any rental income) is over the threshold, yes — you'll keep digital records and file quarterly updates for that self-employment income. Being employed as well doesn't exempt you, but your salary doesn't push you over the line either.
- Will I still be taxed through PAYE on my job?
- Yes. Your employment carries on being taxed through PAYE exactly as now. MTD only changes how you report the self-employment (and property) side; the final declaration after the tax year pulls everything together.
- What's the cheapest way to handle a small side hustle?
- If you just need to file, a bridging tool or a free option is usually all a side hustle needs — you rarely need full accounting software for a second income. The finder shows the cheapest recognised tool for your exact situation.
Keep reading
Thresholds reflect HMRC's announced figures and are kept in step with our recognised-software data. This is general information, not tax advice — confirm your own position with HMRC or a qualified accountant.