Making Tax Digital for Americans with UK rental or freelance income

Does Making Tax Digital apply to US citizens living in the UK

Yes, on the same terms as anyone else. The test looks at UK tax residence and at the type and size of income, not at nationality. A US citizen who is a sole trader or landlord in the UK, with qualifying income above the threshold for the year, must keep digital records and report through compatible software.

Qualifying income is defined narrowly. It counts only gross income from self-employment and from property, measured before expenses, so it is closer to turnover than to profit. Salary, dividends, savings interest and pensions do not count towards the test, however large. An American with a high UK salary and a small freelance sideline can therefore stay outside the system, while one with modest pay and a larger rental income may be inside it.

HMRC's Self Assessment guidance (opens the official GOV.UK page in a new tab) remains the starting point for who files and when. Making Tax Digital changes how the reporting is done and how often, and it does not change which income is taxable. Our UK Self Assessment work now includes checking whether a client has crossed the line.

When does Making Tax Digital start and what are the thresholds

The start is phased by income. The first stage began on 6 April 2026 for the highest qualifying incomes. The threshold then drops from 6 April 2027 and again from 6 April 2028, bringing in progressively smaller sole traders and landlords. HMRC publishes the exact amounts in its guidance, and we do not restate them here because they have been revised before.

HMRC works out which stage applies to you from an earlier Self Assessment return, so the start year can be known in advance. A person who filed a return for the previous tax year showing qualifying income above the next threshold can expect to be told, and can usually sign up voluntarily before then.

The rules are in their first year, and the second stage is under six months away. That makes the present the sensible time for an American with UK freelance or rental income close to the next threshold to look at software and record keeping, rather than meeting the change for the first time in April. Qualifying income is counted per person, so a couple who each let or trade should look at their own figures separately.

• Stage one: from 6 April 2026, for the highest qualifying income
• Stage two: from 6 April 2027, at a lower threshold
• Stage three: from 6 April 2028, at a lower threshold again
• The test uses gross income from self-employment and property only

What do quarterly updates and the final declaration involve

Each quarter, compatible software sends HMRC summary totals of business income and expenses drawn from your digital records. After the tax year ends, a final declaration confirms the figures and replaces the Self Assessment return. The declaration is due by the same date as the online return, 31 January after the tax year ends, and any balance of tax is payable by then.

Quarterly updates are not tax returns and are not a separate payment event. They give HMRC a running picture,. Records must be kept digitally, either in compatible software or in a spreadsheet linked to it by a bridging tool. HMRC has removed the separate end of period statement that earlier versions of the scheme required, so the year ends with the final declaration. Software can usually categorise items as they are entered, which is easier than rebuilding a year of records in January.

Missing a deadline now carries penalties under the points-based system described on HMRC's Self Assessment penalties (opens the official GOV.UK page in a new tab) pages, and late payment is treated separately. Because the same person may still have a US return to file, the practical gain from the system is not speed but a clean set of records that both returns can use.

• Keep digital records of every business income and expense item
• Send quarterly updates from compatible software
• Make the final declaration after the tax year ends
• Pay any balance of tax by the usual Self Assessment date

How does Making Tax Digital fit with SA106 and SA109

The two do not sit comfortably together yet. HMRC guidance has treated anyone who completed the residence pages, SA109 (opens the official HMRC page in a new tab), in their 2024/25 return as temporarily exempt, and the exemption was described as running until April 2027. Exempt taxpayers carry on with an ordinary Self Assessment return and need no quarterly updates.

The residence pages are used by people claiming split-year treatment, those who are not resident or are dual resident, and those claiming the foreign income and gains regime or a treaty position. A US citizen in the first years after arriving from the US is often in that group. The foreign pages, SA106 (opens the official HMRC page in a new tab), report foreign income and the credit for foreign tax, and filing them does not by itself create the exemption.

The exemption is a deferral, not a permanent carve-out, and HMRC's guidance has changed on who qualifies and how to apply. A person who did not file SA109 in 2024/25 but expects to need it may be able to apply. Confirm the current wording on the exemption page, and keep our SA109 form guide in view if a residence or treaty claim is likely.

How do quarterly UK figures line up with a US return

Quarterly updates follow the UK tax year, which runs from 6 April to 5 April, while Form 1040 is a calendar-year return in dollars. The two never match without adjustment, and the quarterly totals are only a starting point for the US side. Income and expenses still have to be re-cut to the calendar year and converted to dollars by a documented method.

Take a US citizen working as a freelance consultant in Edinburgh who also lets a flat in Leeds. The quarterly updates show UK income and costs to HMRC's rules. On the US side the consultancy income goes on Schedule C and the rental on Schedule E, with US depreciation of the building, which the UK return does not allow. HMRC's rules on working out rental income (opens the official HMRC page in a new tab) restrict mortgage interest relief, so the UK and US profits differ.

The UK tax from the final declaration then feeds the foreign tax credit on Form 1116. Our post on choosing between the foreign tax credit and the exclusion in the UK explains why credit is often the better route, and why UK tax paid after year end needs care on timing. A self-employed American should also settle National Insurance and the US totalization position.

What should a US citizen with UK rental or freelance income do now

Work out which stage of the system applies, then put the record keeping in place before the first quarter, not after. Check qualifying income from the latest return, check whether an exemption applies, and choose software that exports data in a form a US preparer can use. Choosing software that records the date and currency of each item makes the dollar conversion much easier later.

Keep the US return in view from the start. The Schedule E (opens the official IRS page in a new tab) rental figures and the Schedule C business figures need a calendar-year view, so ask your software to report by month. Our individual tax returns service prepares Form 1040 from the same records, and the cross-border tax team reconciles the UK and US treatment of each item.

The deadlines for both countries are laid out in our post on US and UK tax deadlines in one calendar, and the SA100 form guide explains the return that Making Tax Digital replaces for those in scope. The guide for Americans in the UK covers the rest of the annual cycle, and you can contact us to have your own position reviewed.