HMRC expects around 1,077,000 more sole traders and landlords to come into Making Tax Digital for Income Tax from 6 April 2027. Its message is blunt: sole traders and landlords earning more than £30,000 urged to act now. If your income sits somewhere between £30,000 and £50,000, the new making tax digital threshold probably includes you.
A common assumption is that the making tax digital threshold is about profit, and that it won’t touch you for years. Neither is true, and the year that decides your position has already ended.
Qualifying income over this in 2024-25 meant MTD from 6 April 2026
Qualifying income over this in 2025-26 means MTD from 6 April 2027
Qualifying income over this in 2026-27 means MTD from 6 April 2028
The test is gross income before expenses, with self-employment and property income added together.
These thresholds aren’t proposals. They’re written into the Income Tax (Digital Obligations) Regulations 2026, so plan on the basis that they’re staying. The Budget is on 28 October 2026 and this article is correct at the time of writing, so we’ll re-check it afterwards.
Making Tax Digital thresholds: which year decides what
The guidance on how to find out if and when you need to use Making Tax Digital for Income Tax sets out three steps. Each one looks at a single tax year’s income, and two of those years have already finished.
| Step | You’re in if qualifying income is | Deciding tax year | MTD starts |
|---|---|---|---|
| 1 | Over £50,000 | 2024-25 | 6 April 2026 |
| 2 | Over £30,000 | 2025-26 | 6 April 2027 |
| 3 | Over £20,000 | 2026-27 | 6 April 2028 |
Look at the middle row. The 2025-26 tax year ended on 5 April 2026, so who’s in from April 2027 is already fixed. Nothing you do now changes it. What you can change is how ready you are.
The MTD for Income Tax threshold steps down in three stages (qualifying income over each line)
Over £50,000 – MTD starts 6 April 2026
| £50,000 |
Decided by 2024-25 income
Over £30,000 – MTD starts 6 April 2027
| £30,000 |
Decided by 2025-26 income, a year that has already ended
Over £20,000 – MTD starts 6 April 2028
| £20,000 |
Decided by 2026-27 income
Source: legislation.gov.uk, Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336)
What counts as qualifying income
Qualifying income is your total income from self-employment and property, and it’s gross: turnover before expenses. HMRC’s guidance on how to work out your qualifying income for Making Tax Digital for Income Tax is clear that the two sources are added together. A profit of £25,000 feels comfortably under the line, but the making tax digital threshold never looks at profit.
Worked Example: Take a Norwich mobile dog groomer who turned over £35,000 in 2025-26 and spent £9,500 on the van, supplies and insurance. Profit is £25,500, but qualifying income is the full £35,000. That’s £5,000 over the line, so the groomer starts MTD on 6 April 2027, with the first quarterly update covering 6 April to 5 July 2027 and due by 7 August 2027.
Profit vs qualifying income: the Norwich dog groomer, 2025-26
Profit (what it feels like)
| £25,500 |
The £30,000 threshold
| £30,000 |
Qualifying income (turnover before expenses)
| £35,000 |
£5,000 over the line, so MTD starts on 6 April 2027
Illustrative example: £35,000 turnover less £9,500 expenses = £25,500 profit. Threshold per GOV.UK.
The same adding-up catches landlords with a side trade. £22,000 of rental income plus £11,500 of freelance work is £33,500 of qualifying income, even though neither figure is over £30,000 alone. Your share of jointly owned property counts too. If rent is a big part of your income, our landlord accountants can help you work out where you stand.
Some income stays outside the test altogether: employment income (your PAYE pay), your share of partnership profit, dividends including from your own company, and pension income. A landlord who’s also a partner in a firm only counts the rent.
The £90,000 VAT threshold is a different test from MTD for Income Tax
The VAT thresholds look at VAT-taxable turnover and decide whether you register for VAT. The MTD for Income Tax thresholds look at gross self-employment and property income and decide whether you report quarterly. Different tests, different rules, and passing one tells you nothing about the other.
What happens once you’re in MTD for Income Tax
HMRC reviews your Self Assessment return each year, checks your qualifying income, and writes to you if you’re over. We wouldn’t wait for the letter. It’s still your responsibility to check, and a late letter leaves little time to choose software and set up records.
Once you’re in, digital record-keeping becomes the daily habit: you keep digital records of your income and expenses, send four quarterly updates a year using compatible software, then make a final declaration. You still file a tax return by 31 January. Quarterly updates are running totals, not extra tax returns. If you’ve already missed one, our post on what to do if you missed the 7 August MTD deadline explains the next step, and the first group’s preparation is in Making Tax Digital for Income Tax: What Landlords and Sole Traders Must Do Before 6 April 2026.
The penalty points system starts in the first year you join. Each missed deadline earns a point, and at four points you pay a £200 penalty, then £200 for each further missed deadline, as HMRC’s penalties guidance for MTD for Income Tax sets out.
Can you get out of Making Tax Digital for Income Tax?
There are three routes, and none is a quick fix.
Exemptions. You apply if it isn’t reasonable for you to use compatible software, for example because of age, health, disability or no internet access at your home or business. HMRC doesn’t accept being unfamiliar with software, or the cost, as a reason. HMRC’s exemption guidance has the detail.
Three years below the line. Your qualifying income must stay below the threshold for three consecutive years. One quiet year doesn’t release you, and HMRC’s Self Assessment Legal Framework manual (SALF1440) says the rule keeps people in scope for a minimum of four tax years.
Stopping the income. If you cease all self-employment and property income, you finish the final updates, send that year’s return through MTD software, and after that tax year you don’t need MTD.
Does going limited get you out of MTD?
Not on its own, and I’d be doing you a disservice if I let you think it did.
A limited company is a separate taxpayer. Your salary and dividends from it aren’t self-employment or property income. But what takes you out of MTD for Income Tax is ceasing your own self-employment and property income, as the guidance on how to add or cease income sources explains. Keep a rental flat or a second trade, and you stay in. HMRC has also said it doesn’t intend to introduce MTD for Corporation Tax, though a new approach is still being developed.
Worked Example: Consider an electrical contractor with £38,000 turnover and £11,000 of expenses in 2025-26. Qualifying income is £38,000, so they’re in from April 2027. If the whole trade later moves into a company and they have no other self-employment or property income, the cessation rules should apply. They’d send the final updates, file that year’s return through MTD software, and then leave. GOV.UK doesn’t spell out how incorporation is treated, though, so it’s worth confirming the timing with HMRC or an accountant first. If they also own a flat bringing in £6,000 a year, the property income continues and they stay in.
Here’s my honest view: switching to a limited company purely to avoid MTD is the wrong reason. Tax, National Insurance, running costs, IR35 if you contract through a company, and where you want the business in five years should decide it. For some people at £35,000 turnover, staying a sole trader is clearly cheaper. For others with rising profits, a company wins even with the extra admin. Our guide on Sole Trader to Limited Company: When to Switch and How to Do It explains the trade-offs, and as a Norwich firm we’re the people to run your own numbers with.
What to do before MTD starts in April 2027
If your 2025-26 turnover was over £30,000, treat the next few months as a runway.
- Check your 2025-26 turnover now. Add self-employment and property income together, before expenses.
- File your 2025-26 return early. Don’t leave it to 31 January 2027.
- Choose compatible software and sign up before April. HMRC advises signing up early.
- Start keeping digital records. A trial run from January means no surprises in the first quarter.
- Diarise the quarterly dates. Standard updates fall due on 7 August, 7 November, 7 February and 7 May.
- Look at £20,000 too. If your 2026-27 qualifying income is over £20,000, you’re in from 6 April 2028.
Making Tax Digital threshold FAQs
Is the MTD threshold based on profit or turnover?
Turnover. Qualifying income is gross, before expenses are deducted.
Does PAYE salary count towards the threshold?
No. Only self-employment and property income count. Employment income, dividends and pensions don’t.
How does HMRC know if I’m in scope?
It checks the income on your Self Assessment return for the deciding tax year and writes to you if you’re over. Don’t rely on the letter, though.
What happens if my income drops below the threshold?
You don’t leave straight away. Qualifying income must stay below the threshold for three consecutive years.
Talk it through with us
The MTD threshold is simple on paper and fiddly in practice, especially when rent, a side trade and a company are all in the mix. If you’re unsure which side of £30,000 you’re on, or whether staying a sole trader still makes sense, get in touch. Working through exactly this is what we do for our clients.
This article provides general guidance based on current legislation and HMRC practice. Tax rules are complex and fact-specific. The information here should not be relied upon as advice for your particular circumstances. Please consult a qualified accountant or professional advisor for guidance tailored to your situation.
