Does Making Tax Digital apply to my import business?
It can apply if your combined self-employment and property income before expenses exceeds HMRC’s threshold and you are not exempt. Check your start date, choose compatible software and reconcile import payments before reporting. Supplier paperwork can be gathered with help from Cambridge China Bridge.
Check qualifying income and your start date
For a sole trader registered for Self Assessment, the test uses combined self-employment and property income before expenses. Buying China stock does not reduce that eligibility figure. Use HMRC’s tool titled “Find out if and when you need to use Making Tax Digital for Income Tax”, with your relevant tax returns beside you. Check possible exemptions through the same guidance.
The thresholds below mean income above the stated amount. Check even if no HMRC letter arrives. If your start date has passed, sign up and catch up with digital records from the start of the tax year. Ask your accountant to confirm the result if your accounting period was shorter than a full year, as HMRC can annualise sole-trader qualifying income.
| Income tax year | Qualifying income | Required start date |
|---|---|---|
| 2024 to 2025 | Over £50,000 | 6 April 2026 |
| 2025 to 2026 | Over £30,000 | 6 April 2027 |
| 2026 to 2027 | Over £20,000 | 6 April 2028 |
Choose software before signing up
Use HMRC’s software finder from “Choose the right software for Making Tax Digital for Income Tax”. Listed products have passed HMRC’s recognition process; HMRC does not recommend a provider. Check that your chosen setup supports digital records, quarterly updates and your tax return, including other income. If you already use VAT software, check its Income Tax compatibility separately.
Spreadsheets can remain part of the setup when bridging software connects them to HMRC submissions. Ask the provider to demonstrate a factory deposit, a foreign-currency balance payment, a refund and an import-expense entry. Check accountant access, document attachments, currency handling, corrections and data export. Choose and authorise the software, and agree who will sign up and submit.
Enter China stock payments on the agreed basis
Agree cash basis or accrual accounting with your accountant before importing transactions. For an already trading cash-basis business, confirm with HMRC or your accountant when qualifying stock payments can be recorded as expenses, including a deposit towards the purchase price. Our China stock payment guide explains the timing and exceptions. Do not import the final invoice as another expense after already recording its paid deposit and balance.
Digital income and expense records need an amount, date and category. Add an order reference and supporting document so you can trace each entry. Ask your accountant to map stock, freight, insurance, clearance, duty and bank charges to the appropriate categories. Reconcile supplier and forwarder advances against final charges, credits and refunds rather than categorising every transfer automatically as a purchase.
Reconcile currency and import expenses
Keep the original currency amount, sterling entry, conversion evidence and separately stated fees together. Ask your accountant to approve the conversion method for your accounting basis; our foreign-currency invoice guide explains accrual-accounting treatment. Match deposits and balances to the same order, and investigate exchange differences or short payments before clearing a supplier balance.
Keep recoverable or postponed import VAT identifiable for review, and agree consistent VAT treatment with your accountant. Use our import VAT guide for that separate process. Link supplier entries to freight invoices, customs declarations and duty evidence using our HMRC import-records guide. Ask Cambridge China Bridge’s staff in China for missing invoices, deposit allocations or refund confirmations.
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Check cumulative totals before each update
Quarterly updates are summaries, not tax returns. Each covers the start of the tax year through the end of the update period, rather than only the latest quarter. HMRC receives category totals, not individual invoices. Agree standard or calendar update periods with your accountant before submitting, and use the deadlines shown in your software.
Reconcile bank feeds, supplier balances and import charges before checking the totals. Look for duplicated deposits, missing refunds and personal transactions. Updates are still required during an inactive period. Accounting and tax adjustments are not required before a quarterly update, but retain unresolved items for your accountant. Agree responsibility for updates, year-end review and submission of the tax return through compatible software.
Frequently asked questions
Does buying stock reduce my MTD qualifying income?
No. The eligibility test uses self-employment and property income before expenses. Stock costs affect the profit calculation, not that gross-income test.
Do I need MTD if HMRC has not sent a letter?
You must still check whether and when it applies. Use HMRC’s eligibility tool with your tax returns and check possible exemptions.
Can I use a spreadsheet for Income Tax reporting?
Yes, with suitable bridging software connecting your records to HMRC submissions. Check that the complete setup supports quarterly updates and your tax return.
Do I report only this quarter’s China payments?
Each update is cumulative from the start of the tax year. Record payments using your agreed accounting basis, then check the software’s totals for deposits, balances, refunds and import expenses.