Are you in? It’s your takings, not your profit
Add up everything clients paid you directly as a sole trader in the 2025/26 tax year – day-rate contracts, fixed-price projects, retainers, hosting and maintenance fees you charge, and any expenses you rebilled to clients – before taking off software, hardware or anything else. If that total (plus any rent from property you let) is over £30,000, MTD applies from 6 April 2027. Over £50,000 and you have been in since April 2026. Salary from a job or an umbrella company does not count.
Over £50,000
Over £30,000
Over £20,000
planned
Your work in accountant language
What actually happens in your working life, what your accountant and HMRC call it, and what to do about it.
| What happens | Accountant calls it | What you do |
|---|---|---|
| A client pays your invoice for last month’s sprint | Turnover – recorded when paid (cash basis) | Record the amount when it lands in your account, not when you send the invoice. |
| You recharge a client for the server costs you paid on their behalf | Turnover (recharged expense) + an expense | Record the original cost as an expense and the recharge as income. |
| A freelance platform pays you after taking its service fee | Gross income + an expense (fees) | Record the full contract value as income and the fee separately as an expense. |
| You buy a new laptop and a second monitor | Equipment – deductible in the year you buy it (cash basis) | Keep the receipt; claim only the business share if it is also your personal machine. |
| You renew your IDE licence, GitHub plan and cloud hosting | Allowable expense – software and subscriptions | Keep the invoices; most arrive by email, so file them as they come in. |
| You work from your spare room most days | Use of home – flat rate or business share of costs | Either claim the simplified flat rate (up to £26 a month) or work out a fair share of bills. |
| You move money to your personal account to pay your rent | Drawings – not an expense | Fine to do, but it does not reduce your tax. |
| Every three months | Quarterly update | Your software sends HMRC your income and expense totals. |
| After 5 April | Final declaration | Confirm the year’s figures; tax is worked out and due by 31 January. |
What can a freelance developer claim?
✓ Usually allowable
- Laptops, monitors, keyboards, phones and test devices (business share)
- Software licences, IDEs, design tools and developer subscriptions
- Cloud hosting, domains and API costs you pay for client work
- Freelance platform fees and payment processing charges
- Professional indemnity and cyber insurance
- Courses and certifications that update skills you already use
- Home office costs – the flat rate or a fair share of heating, power and broadband
- Coworking desk fees
- Travel to a client’s site for a temporary piece of work
- Accountancy fees and bookkeeping software
✗ Not allowable
- Travel to a client site you attend every day as your regular workplace
- The personal-use share of a laptop or phone
- Lunches, coffees and snacks while coding
- Gaming hardware that is not genuinely for work
- Money you take out for yourself (drawings)
Rules that matter for freelance developers
Limited company contractors are outside MTD for Income Tax
If you invoice through your own limited company, the company pays Corporation Tax and is not part of MTD for Income Tax. Your salary and dividends do not count towards the threshold. You may still be pulled in personally if you have rental income of your own above the threshold.
IR35 – briefly
IR35 is about contractors working through their own company who look like employees. As a sole trader it does not apply in the same way, but if an agency places you and someone supervises and controls your work, you could be treated as employed for tax. HMRC’s Check employment status for tax tool can help you see where you stand.
Umbrella company pay is wages
If you are paid through an umbrella company, you are its employee and that income is not self-employment. It does not count towards MTD, though any separate freelance work you invoice yourself does.
Watch the VAT threshold too
Developers on strong day rates can pass the £90,000 VAT registration threshold. Once VAT-registered, MTD for VAT applies as well – the same software can usually handle both.
Worked example
Tom, a freelance web developer in Manchester (illustrative example)
| Takings (turnover) | £48,000 |
| less Laptop and monitor | −£2,300 |
| less Software, hosting and subscriptions | −£1,450 |
| less Platform and payment fees | −£900 |
| less Coworking desk | −£2,400 |
| less Insurance and training | −£1,100 |
| less Phone and broadband (business share) | −£520 |
| Profit | £39,330 |
| Income tax (estimate) | £5,352 |
| Class 4 National Insurance (estimate) | £1,606 |
| Total tax for the year | £6,958 |
| Put aside each month | £580 |
Estimate for 2026/27 using England, Wales & NI rates, assuming no other income. Scotland has different income tax bands.
What a quarterly update looks like
A typical quarter for a freelance developer: match every client payment in your bank feed to an invoice, note any recharged costs, and drag in the subscription receipts that arrived by email. Most developers have few transactions, so with bank-connected software this can take under 30 minutes. Then submit from your software, or let your accountant do it.
| Quarter | Period | Submit by |
|---|---|---|
| Q1 | 6 Apr – 5 Jul | 7 Aug |
| Q2 | 6 Jul – 5 Oct | 7 Nov |
| Q3 | 6 Oct – 5 Jan | 7 Feb |
| Q4 | 6 Jan – 5 Apr | 7 May |
| Final declaration | The whole tax year | 31 Jan following |
Quarterly updates are summaries – they don’t change when you pay. Tax is still due by 31 January (plus payments on account on 31 January and 31 July if they apply to you).
What will an accountant cost?
Typical monthly fees under MTD for Income Tax for: Sole trader, one business.
| Option | What you get | Per month |
|---|---|---|
| You do it yourself | MTD-compatible software. You keep the records and send the updates. | £0–£15up to £180 a year |
| Accountant files for you | You keep records in an app; they check them, send the 4 quarterly updates and the final declaration. | £30–£60about £360–£720 a year |
| Full service | They do the bookkeeping too – you share receipts and bank feeds, they handle the rest. | £60–£120about £720–£1,440 a year |
What pushes the price up: lots of transactions every month, or more than one income stream; records kept on paper rather than in an app; being VAT-registered; catching up on missed updates or late returns.
What a fixed-fee quote should include
- All 4 quarterly updates and the final declaration (your tax return)
- The MTD software licence – or whether you pay for it separately
- Whether they do the bookkeeping or only check what you’ve recorded
- A reminder before each deadline and an estimate of the tax to put aside
- Whether VAT (20%) is added on top – not every practice charges it
Accountancy fees for your business are an allowable expense, so they reduce your tax bill.
Indicative ranges from published UK price lists, checked October 2026. Not a quote – your fee depends on how many transactions you have, how tidy your records are and where you live.
Questions freelance developers ask
I trade through my own limited company. Do I need MTD for Income Tax?
Not for the company. Limited companies are outside MTD for Income Tax. You might still need it personally if you also have self-employment or property income above the threshold.
Do I record income when I invoice or when I get paid?
Under the cash basis, which is now the default for most sole traders, you record income when you are paid. Unpaid invoices at the end of a quarter are not income yet.
Can I claim my laptop if I also use it for Netflix?
You can claim the business share. Under the cash basis the claim goes in the year you buy it.
I’m employed and do freelance projects in the evenings. Am I affected?
Your salary does not count. Your freelance takings do – if they (plus any rental income) go over the MTD threshold, MTD applies to you.
Sources
- Find out if and when you need to use Making Tax Digital for Income Tax – GOV.UK
- Work out your qualifying income for Making Tax Digital for Income Tax – GOV.UK
- Send quarterly updates using Making Tax Digital for Income Tax – GOV.UK
- Find software that works with Making Tax Digital for Income Tax – GOV.UK
- Penalties for Making Tax Digital for Income Tax – GOV.UK
This guide is general information about HMRC’s Making Tax Digital rules as of 26 October 2026, not tax advice. MTD Match is an independent introduction service and is not affiliated with HMRC. Check gov.uk or speak to an accountant about your own situation.