Key Takeaways
- Sole traders and landlords with qualifying income above £50,000 must comply with MTD for Income Tax from 6 April 2026.
- MTD thresholds drop to £30,000 in April 2027 and £20,000 in April 2028.
- Qualifying income means your gross income before expenses from self-employment and property combined.
- Income from PAYE employment, pensions, savings, and dividends does not count towards the MTD threshold.
- If your income drops below the threshold after joining MTD, you must stay in the system for three consecutive years before you can apply to leave.
- A soft landing period in 2026/27 means no penalty points for late quarterly updates, but the full points-based penalty regime applies from 2027/28.
Table of contents
- 1. What are the MTD income tax thresholds?
- 2. What counts as qualifying income for MTD?
- 3. Which tax year does HMRC use to assess your threshold?
- 4. What happens if your income drops below the MTD threshold?
- 5. Quarterly reporting and the soft landing period for MTD
- 6. How to prepare for MTD if you’re above the threshold?
1. What are the MTD income tax thresholds?
HMRC is rolling out Making Tax Digital for Income Tax in three phases, each with a different income threshold.
If your qualifying income from self-employment or property crosses the relevant threshold, you’ll need to keep digital records and submit quarterly updates to HMRC using compatible software.
Here’s how the phased rollout works:
| Phase | Start date | Income threshold | Reference tax year | SA filing deadline |
|---|---|---|---|---|
| Phase 1 | 6 April 2026 | More than £50,000 | 2024/25 | 31 January 2026 |
| Phase 2 | 6 April 2027 | More than £30,000 | 2025/26 | 31 January 2027 |
| Phase 3 | 6 April 2028 | £20,000 or more | 2026/27 | 31 January 2028 |
For Phases 1 and 2, you need to have income of more than £50,000 or £30,000 – meaning exactly £50,000 or exactly £30,000 does not bring you into scope.
For Phase 3, the wording shifts to £20,000 or more, so earning exactly £20,000 does trigger MTD obligations.
The government has said it may lower the threshold further in future, but no date has been set for anything below £20,000.
2. What counts as qualifying income for MTD?
Qualifying income is the figure HMRC uses to decide whether you’ve crossed the MTD threshold.
It’s your gross income: that means total income before any deductions, expenses, or allowances. Your taxable profit is irrelevant for this test.
This is where many sole traders and landlords get caught out. You might have a taxable profit well below £50,000, but if your gross turnover from self-employment and property combined exceeds the threshold, you’re in scope!
Self-Employment Income
Your qualifying income from self-employment is the total turnover figure you report on your Self Assessment return. If you use the short self-employment pages (SA103S), that’s Box 9. If you use the full pages (SA103F), it’s Box 15. Any other self-employment income goes in Box 16 (SA103F) or Box 10 (SA103S).
If you run more than one self-employed business, the turnover from each one is added together.
Property Income
UK property income counts towards the MTD threshold too.
HMRC looks at the figures in your SA105 return – Box 20 for total property income, plus Box 22 (income from granting a lease) and Box 23 (reverse premiums) if they apply. For the 2024/25 tax year only, furnished holiday let income from SA105 Box 5 is also included.
If you jointly own a property, only your personal share of the rental income counts. So if a property generates £70,000 a year and your share is 50%, your qualifying income from that property is £35,000.
Combined Sources
HMRC adds all your self-employment and property income together to check if you’ve crossed the threshold. This is the part that catches people who assume their individual income streams are each below the limit.
For example: if you earn £32,000 from a freelance business and £21,000 from a rental property, your total qualifying income is £53,000. That’s above the Phase 1 threshold even though neither source exceeds £50,000 on its own.
The following types of income do not count towards the MTD threshold:
- PAYE employment income
- pension income
- savings interest
- dividends
- investment income and
- capital gains.
Only self-employment and property income are relevant.
| Counts towards MTD threshold | Does not count |
|---|---|
| Self-employment turnover (all trades) | PAYE employment income |
| UK property income (rentals) | Pension income |
| Furnished holiday let income (2024/25 only) | Savings interest |
| Lease premiums and reverse premiums | Dividends |
| Foreign self-employment or property income (if UK domiciled) | Investment income |
| Other self-employment income (SA103F Box 16 / SA103S Box 10) | Capital gains |
3. Which tax year does HMRC use to assess your threshold?
HMRC doesn’t assess your threshold based on the current tax year – it uses the most recent Self Assessment return you’ve filed before the mandation date.
- For Phase 1 (April 2026): HMRC looks at your 2024/25 tax return, which was due by 31 January 2026. If that return shows qualifying income above £50,000, you’ll need to comply with MTD from 6 April 2026.
- For Phase 2 (April 2027): HMRC reviews your 2025/26 return, due by 31 January 2027.
- For Phase 3 (April 2028): it’s your 2026/27 return, due by 31 January 2028.
This matters because your income can change a lot from year to year. You might be above the threshold one year and below it the next. HMRC makes the call based on one specific return, not an average.
4. What happens if your income drops below the MTD threshold?
Once you’re within MTD for Income Tax – whether you joined voluntarily or because your income crossed the threshold – you stay in.
A single year of lower income doesn’t take you out!
To become exempt from MTD after joining, your qualifying income must fall below the relevant threshold for three consecutive tax years. HMRC assesses this based on filed returns or, where returns haven’t been filed yet, your quarterly updates.
Say your qualifying income was £55,000 in 2024/25, bringing you into MTD from April 2026. If your income then drops to £38,000 in 2025/26, £28,000 in 2026/27, and £15,000 in 2027/28, you’d have three consecutive years below the threshold given for the current tax year while within MTD. You could then apply to leave MTD from 2029/30.
During the intervening years, you’re still required to keep digital records and submit quarterly updates even though your income is below the threshold that originally brought you in.
If you signed up voluntarily when your income was below the threshold, the same exit rules apply. Voluntary participation doesn’t give you an easier way out.
5. Quarterly reporting and the soft landing period for MTD
Under MTD for Income Tax, you’ll need to submit quarterly updates to HMRC summarising your income and expenses for each period. These updates follow the tax year quarters, regardless of your business’s own accounting dates.
The quarterly deadlines for the 2026/27 tax year are:
- 6 April to 5 July (due by 7 August)
- 6 July to 5 October (due by 7 November)
- 6 October to 5 January (due by 7 February)
- 6 January to 5 April (due by 7 May).
After the fourth quarterly update, you’ll need to submit a Final Declaration by 31 January following the end of the tax year.
For the first year of mandation (2026/27), HMRC has confirmed a soft landing period. No penalty points will be issued for late quarterly updates during this year.
6. How to prepare for MTD if you’re above the threshold?
Start by checking your 2024/25 Self Assessment return. Look at the specific boxes that HMRC uses to assess qualifying income, add those figures together. If the total is above £50,000, you’ll need to comply from April 2026.
Next, choose your MTD software.
If you work with an accountant, talk to them now about how your working relationship will change. Your accountant will need authorisation to act on your behalf within the MTD system, and they’ll need to be set up with compatible software too.
For specialist support with Making Tax Digital, like if you’re a freelancer, sole trader, or landlord in the creative industries, WallsMan Creative’s team of accountants understand both the technical requirements and the practical realities of running a creative business in the UK.
