Making Tax Digital
Making Tax Digital for online sellers
Making Tax Digital is tested on your sales before marketplace fees, not the payouts that reach your bank.
Which number counts
Making Tax Digital (MTD) for Income Tax applies once your qualifying income passes a threshold. Qualifying income is your self-employment and property income before expenses: your turnover, not your profit.
For a marketplace seller, turnover is your sales less refunds. It is not the payout. By the time a settlement reaches your bank, the marketplace has taken its fees, advertising and other charges, and may be holding back a reserve. Those are business expenses or timing differences. They don’t reduce turnover.
The thresholds
- From 6 April 2026: qualifying income over £50,000
- From 6 April 2027: over £30,000
- From 6 April 2028: over £20,000
Each start date is tested against an earlier tax return, and sales from every channel are added together. See MTD thresholds and start dates.
Worked example
Scroll across the table to read every column.
| Amount | |
|---|---|
| Sales | £62,400 |
| Refunds | −£3,120 |
| Turnover | £59,280 |
| Marketplace fees | −£9,360 |
| Advertising charged by the marketplace | −£4,680 |
| Paid to bank | £45,240 |
Turnover is £59,280, so this seller is over the £50,000 threshold. Judged on payouts alone (£45,240), they would wrongly think they were under it.
What your records need to show
HMRC’s guidance is direct: if you only know your income after expenses have been taken off, find out the full amount and record the income and the expenses separately. A bank feed of payouts is not enough on its own. Each settlement needs to be split into sales, refunds, fees and other charges.
If your turnover is under £90,000, you can choose simpler categories and record each item only as income or an expense. Retailers can record daily gross takings instead of each sale.
We do this reconciliation every month for sellers. See ecommerce bookkeeping, Amazon settlement reconciliation and our guide to marketplace payout reconciliation.
What to do next
- Download the transaction or settlement reports for every marketplace and web shop for the tax year.
- Total sales and refunds separately from fees, advertising and reserves.
- Add any rental income. The threshold applies to both combined.
- Compare the total with the threshold for the coming April.
- If you are in, choose compatible software and start digital records from 6 April. See MTD quarterly updates and deadlines.
About Andrew
Andrew Ramsell runs the accounting and finance work for sole traders, landlords and limited companies, including their Making Tax Digital updates, and builds the software that takes recurring work off their hands. He is an AAT-qualified accountant.
Sources
HMRC guidance on GOV.UK, checked 10 October 2026:
Common questions
Do marketplace fees reduce my income for MTD?
No. Fees, advertising and other marketplace charges are business expenses. Qualifying income is measured before expenses.
Do refunds count?
Refunds reduce your sales, so turnover is sales less refunds. Record them separately from fees.
Should VAT be included?
If you are VAT-registered, sales are normally recorded excluding VAT. If you use the cash basis, you can choose to include VAT, and then it counts towards qualifying income.
I sell through a limited company. Does this apply?
No. MTD for Income Tax applies to individuals with self-employment or property income. A company’s profits are taxed through Corporation Tax.
Talk to Andrew
The first conversation is free. Email andrew@ingoodorder.co.uk with the marketplaces you sell on and roughly how many orders you handle each month.
Want it set up for you? MTD-ready in a week is a fixed-fee setup.
Opens a short enquiry form. Nothing is sent until you press Send enquiry.
Prefer email? Write to andrew@ingoodorder.co.uk.
Know another online seller who’d benefit? Introduce them and I’ll pay you £50 when they sign up.