Making Tax Digital for Income Tax Thresholds Explained
Making Tax Digital for Income Tax is no longer a distant admin change. For many sole traders and landlords, the key question is simple: does my income put me over the threshold, and if so, when do I need to comply?
The answer depends on your qualifying income, not your profit. That one detail catches a lot of people out. Someone with £55,000 of rental income and £20,000 of expenses could still fall within the rules, because the threshold looks at income before expenses.
This guide explains the Making Tax Digital for Income Tax thresholds, how HMRC applies them, which income counts, and what to do if you are close to the limit.
What Making Tax Digital for Income Tax means
Making Tax Digital for Income Tax, often shortened to MTD for Income Tax or MTD ITSA, changes how some self-employed people and landlords keep records and report income to HMRC.
Instead of keeping records in any format and filing one Self Assessment tax return after the tax year ends, affected taxpayers need to:
Keep digital records of business or property income and expenses
Use MTD-compatible software
Send quarterly updates to HMRC
Submit a final declaration after the tax year
The rules do not replace Income Tax. They change the way records are kept and how information reaches HMRC.
MTD for VAT has already been in place for VAT-registered businesses. MTD for Income Tax applies to individuals with self-employment income, property income, or both, once their qualifying income goes above the relevant threshold.
This article is for general information only and is not tax advice. If your situation is complex, check directly with HMRC or speak to a qualified accountant.
The current Making Tax Digital for Income Tax thresholds
The rollout is based on income bands. People with higher qualifying income join first, then the rules widen to include lower income bands later.
Start date | Who is expected to join MTD for Income Tax | Threshold |
6 April 2026 | Sole traders and landlords with qualifying income over £50,000 | MTD £50,000 threshold |
6 April 2027 | Sole traders and landlords with qualifying income over £30,000 | MTD £30,000 threshold |
6 April 2028 | Sole traders and landlords with qualifying income over £20,000 | Making Tax Digital £20,000 limit |
The key point is that these are gross income thresholds. They look at income before expenses, not taxable profit.
For example, if a sole trader invoices £52,000 in a tax year and has £18,000 of allowable expenses, their profit may be £34,000. For MTD threshold purposes, the relevant figure is still £52,000.
That means the Making Tax Digital for Income Tax thresholds can apply sooner than some people expect.
What counts as qualifying income
Qualifying income usually means the total gross income you receive from:
Self-employment
UK property income
Overseas property income, where relevant
A combination of self-employment and property income
The threshold does not apply separately to each income source. HMRC looks at the combined total.
Example of combined income
A landlord has:
£24,000 of gross rental income
£29,000 of gross income from a sole trade
Separately, neither source is above £50,000. Together, they total £53,000.
That person could fall within the rules from April 2026 because their combined qualifying income is above £50,000.
Income that does not usually count towards the threshold
The MTD ITSA income limits are focused on trading and property income. Other income is not usually counted towards the qualifying income threshold, such as:
Employment income through PAYE
Dividends
Bank interest
Pension income
Capital gains
These may still affect your overall Self Assessment position, but they are not usually the income that brings you into MTD for Income Tax.
For example, someone with £28,000 employment income and £24,000 rental income would not add those two figures together for the MTD threshold. The relevant figure would normally be the £24,000 rental income.
How HMRC decides when MTD applies to you
HMRC is expected to use information from your Self Assessment tax return to decide whether you meet the threshold.
That means your reported income for an earlier tax year can determine whether you need to comply from a later start date.
For the first phase, the assessment is expected to rely on Self Assessment information already submitted before the April 2026 start. If your return shows qualifying income above the threshold, HMRC should tell you that you need to follow the MTD rules.
Still, it is risky to wait for a letter if you already know your income is close to the limit. The switch to digital records is easier if you prepare before the deadline.
The practical test is not “How much tax did I pay?” It is “How much gross self-employment and property income did I report?”
The threshold is based on income before expenses
This is the most common misunderstanding.
For normal Income Tax, people often focus on profit. Profit is income minus allowable expenses. MTD thresholds work differently.
Sole trader example
A self-employed electrician has:
Item | Amount |
Gross income from customers | £58,000 |
Tools, materials, van costs and other expenses | £22,000 |
Taxable profit before other adjustments | £36,000 |
For the MTD threshold, the important figure is £58,000, not £36,000.
That means the electrician is above the £50,000 threshold.
Landlord example
A landlord has:
Item | Amount |
Gross rental income | £32,000 |
Repairs, insurance and agent fees | £7,000 |
Rental profit before finance cost rules | £25,000 |
For MTD threshold purposes, the income figure is £32,000.
That puts the landlord above the £30,000 threshold, even though the profit is lower.
What happens if your income changes
Income rarely stays the same every year. You may go above the threshold one year and below it the next. You may sell a rental property, reduce your hours, or take on a large contract.
The rules are designed around reported qualifying income. If your income goes above the relevant threshold on your Self Assessment return, you may be brought into MTD for a future tax year.
If your income later drops, you may be able to leave MTD, but this depends on the rules in force and HMRC’s process at the time. Do not assume that one lower-income year automatically removes all MTD obligations.
The safest approach is to keep an eye on your gross income each year, especially if you sit near one of the thresholds.
When does MTD apply to me?
A simple way to think about the Making Tax Digital timeline UK is to match your combined self-employment and property income to the incoming bands.
If your qualifying income is over £50,000
You are in the first main group, expected to follow MTD for Income Tax from 6 April 2026.
This could include:
A sole trader with annual sales above £50,000
A landlord with gross rents above £50,000
Someone with both trade and property income that together exceed £50,000
If your qualifying income is over £30,000
You are expected to follow the rules from 6 April 2027, unless you already come in from 2026 because your income is over £50,000.
This is where many smaller landlords and part-time sole traders may start to be affected.
If your qualifying income is over £20,000
You are expected to join from 6 April 2028, unless you join earlier due to a higher income level.
This later phase is likely to bring in more people with modest rental income, part-time self-employment, or a mix of both.
What if you are below the threshold?
If your qualifying income is below the current threshold for your start date, you should not have to follow MTD for Income Tax at that point.
You may still need to submit a Self Assessment tax return if HMRC requires one. The MTD rules do not remove the wider Self Assessment system for everyone.
People below the threshold can choose to keep digital records anyway. That may be useful if:
Your income is growing
You want cleaner records
You already use bookkeeping software
You want to avoid a rushed change later
Still, voluntary digital record keeping is not the same as being legally required to submit MTD quarterly updates.
What you need to do once you are within MTD
Once MTD for Income Tax applies, the main change is routine. Instead of sorting everything at the end of the year, you keep records digitally as you go.
The basic requirements are expected to include:
Keeping digital records of income and expenses
Using MTD compatible accounting software
Sending quarterly updates to HMRC
Making any year-end adjustments
Submitting a final declaration
The quarterly updates are not the same as paying tax four times a year. They are updates showing income and expenses for the period. Your actual tax payment dates are a separate issue.
That said, more regular reporting can make tax bills easier to estimate. It can also make poor records more visible, which is why preparation matters.
Software matters more than spreadsheets alone
Many people already keep records in spreadsheets. Under MTD, spreadsheets may still be useful, but they normally need to connect to HMRC through compatible software or bridging software.
The key requirement is that records and submissions must follow the digital rules. Manual retyping between systems can create problems if it breaks the required digital link.
Good software should help you:
Record invoices, rents and expenses
Categorise transactions
Keep digital copies of receipts
Prepare quarterly updates
Send information to HMRC
Keep a clear audit trail
Do not choose software only because it says “MTD ready”. Check whether it suits your actual income type. A landlord with two properties may need different features from a sole trader with stock, subcontractors and van costs.
How to prepare if you are near a threshold
The best time to prepare is before HMRC tells you that you must comply.
Start by checking your most recent Self Assessment return. Look for your gross self-employment income and gross property income. Add them together if you have both.
Then ask three questions:
Is the total above £50,000?
Is the total above £30,000?
Is the total likely to rise above £20,000 before 2028?
If the answer to any of these is yes, you should start planning.
Practical steps include:
Reviewing how you currently keep records
Moving away from paper-only systems
Separating personal and business transactions where possible
Choosing suitable MTD software early
Keeping receipts and invoices digitally
Speaking to an accountant before the start date
The people who struggle most with MTD are unlikely to be those with complicated tax affairs. They are more likely to be those who leave the change until the final months.
Common threshold mistakes to avoid
The rules sound simple, but the details can lead to wrong assumptions.
Mistake 1. Looking at profit instead of income
This is the big one. The threshold is based on gross qualifying income before expenses.
Mistake 2. Checking each income source separately
If you have sole trade income and rental income, HMRC can look at the combined total.
Mistake 3. Ignoring property income because it is small
A single rental property can push someone over a threshold when added to self-employment income.
Mistake 4. Assuming PAYE income counts
Employment income is not usually part of the MTD qualifying income test, although it still matters for your wider tax position.
Mistake 5. Waiting for the start date to change your records
Digital record keeping takes time to set up properly. A calm trial run is better than a rushed switch during a busy tax period.
A quick way to check your position
Use this simple test as a starting point.
Question | What to check |
Do you have self-employment income? | Check gross sales or turnover before expenses |
Do you have property income? | Check gross rents before expenses |
Do you have both? | Add the two gross figures together |
Is the total over £50,000? | You may be in scope from April 2026 |
Is the total over £30,000? | You may be in scope from April 2027 |
Is the total over £20,000? | You may be in scope from April 2028 |
This is not a substitute for advice, but it does give you a clear first view.
The main takeaway
Making Tax Digital for Income Tax is threshold-driven, and the threshold is based on gross qualifying income, not profit.
If your self-employment income, property income, or combined income is above £50,000, £30,000 or £20,000, you need to pay close attention to the relevant start date. The earlier you check your figures, the easier the move to digital records will be.
Start with your latest Self Assessment return. Add up your qualifying income. Then decide whether your record keeping is ready for MTD, or whether now is the time to make changes before the deadline arrives.
Comments