The UK’s Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) initiative is transforming how self-employed individuals and landlords report their earnings to HMRC. Starting in April 2026, those with qualifying incomes will be required to transition from traditional Self Assessment to digital tax reporting.
This guide breaks down the key income thresholds, eligibility criteria, and compliance requirements in a clear, structured format. Whether you’re a sole trader, freelancer, or landlord, understanding these rules will help you prepare for the upcoming changes.
1. Understanding the MTD for Income Tax thresholds
1.1 The £50,000 threshold (From April 2026)
From April 2026, sole traders and landlords with a gross income exceeding £50,000 must comply with MTD for Income Tax. This means:
- You must already be registered for Self Assessment.
- Your combined self-employment and rental income must be £50,001 or more.
1.2 The £30,000 threshold (From April 2027)
A year later, in April 2027, the threshold drops to £30,000. This means:
- If your combined income is £30,001 or more, MTD for Income Tax becomes mandatory.
- The government has indicated that further reductions may follow, potentially bringing even lower earners into scope.
1.3 Future threshold changes
While no official announcement has been made, coming in April 2028, HMRC may eventually extend MTD to all Self Assessment taxpayers, regardless of income level. Staying informed will be crucial for those currently below the thresholds.
2. How is the MTD threshold calculated?
2.1 Tax year basis (6 April – 5 April)
The threshold is assessed based on the tax year (6 April to 5 April), not your business’s accounting period. For example, if your accounting year ends in December, you must still align your MTD reporting with the April–April tax year.
2.2 Gross income vs. turnover
The threshold is based on gross income, not turnover. This means:
- No deductions (e.g., business expenses) are subtracted before assessing eligibility.
- Example: A freelancer with £60,000 in revenue but £20,000 in expenses still qualifies because the threshold is based on £60,000.
2.3 Pre-tax income considerations
The threshold applies to pre-tax earnings, meaning:
- Allowable expenses do not reduce your income for threshold purposes.
- Example: A landlord with £55,000 in rental income (before maintenance costs) must comply with MTD.
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3. What income counts towards the MTD threshold?
3.1 Qualifying income sources
The following must be included in your threshold calculation:
- Self-employment income (sole traders, freelancers, contractors).
- UK rental income (residential or commercial properties).
- Foreign rental/self-employment income (if you’re a UK resident).
3.2 Non-qualifying income
The following do not count towards the MTD threshold:
- Savings interest.
- Pension income.
- Employment income (PAYE).
- Capital gains.
- Dividends.
However, if you’re in MTD, you’ll still need to report these via MTD-compatible software or HMRC’s online services.
4. Special cases and exceptions
4.1 Combined self-employment and rental income
- Your total income from both sources determines MTD eligibility.
- Example: A graphic designer earning £25,000 and a landlord earning £28,000 have a combined income of £53,000, requiring MTD compliance from April 2026.
4.2 Joint property ownership
- Only your share of rental income counts.
- Example: If a property generates £80,000 annually and you own 50%, your share is £40,000. If you also earn £15,000 from self-employment, your total is £55,000, meaning MTD applies.
4.3 Inherited rental properties
- Even if you inherited a property, you must comply if your rental income exceeds the threshold.
- Example: A landlord earning £52,000 from an inherited property must register for MTD from April 2026.
5. Registration and Compliance Process
5.1 Step 1: Self Assessment registration (If not already registered)
Before joining MTD, you must:
- Be registered for Self Assessment.
- Submit at least one traditional tax return.
5.2 Step 2: MTD for Income Tax enrolment
Once your income exceeds the threshold:
- From April 2026: Mandatory if income > £50,000.
- From April 2027: Mandatory if income > £30,000
- From April 2028: Mandatory if income > £20,000.
5.3 What If Your Income Drops Below the Threshold?
Once enrolled, you must continue using MTD even if your income later falls below the threshold. The only exception is if you stop earning self-employment or rental income entirely.
6. Voluntary MTD registration
6.1 Can you join MTD early?
- Yes! If you expect your income to grow, you can voluntarily register for MTD before reaching the threshold.
- Example: A part-time tutor earning £20,000 can opt in to prepare for future growth.
6.2 Benefits of early adoption
- Familiarity with digital tools before they become mandatory.
- Fewer compliance risks when thresholds change.
- Streamlined record-keeping from the start.
7. MTD for VAT vs. Income Tax
For VAT-registered businesses, MTD compliance is mandatory regardless of turnover, with the current VAT registration threshold set at £90,000 as of 2024. This means any business exceeding this revenue level must register for VAT and consequently comply with MTD for VAT reporting.
In contrast, MTD for Income Tax follows a phased implementation with distinct income thresholds. The initial threshold of £50,000 (effective April 2026) will be reduced to £30,000 in April 2027, applying to combined self-employment and property income.
8. Preparing for MTD: Next steps
8.1 Choose MTD-compatible software
HMRC requires approved software for digital submissions. Options include:
- QuickBooks, Xero, FreeAgent.
- HMRC’s own tools (for basic reporting).
8.2 Maintain digital records
Start transitioning from spreadsheets or paper records to digital bookkeeping.
8.3 Stay updated on deadlines
- April 2026: £50,000 threshold begins.
- April 2027: £30,000 threshold applies
- April 2028: £20,000 threshold applies.
9. Common misconceptions about MTD for Income Tax
Many taxpayers mistakenly believe that MTD only applies to large businesses or that expenses reduce the threshold calculation. However, as outlined earlier, gross income (before deductions) determines eligibility. Another myth is that MTD replaces Self Assessment entirely—while it changes how you report, you’ll still need to file an annual final declaration. Additionally, some assume MTD requires complex accounting, but user-friendly software simplifies the process. Clearing these misconceptions early helps avoid compliance pitfalls.
10. Penalties for non-compliance
HMRC will enforce penalties for late submissions, errors, or failure to adopt MTD. Initially, a soft-landing period may apply, but fines could accrue over time. Staying informed on deadlines and using approved software minimises risks. Proactive preparation ensures a seamless transition and avoids unnecessary penalties.
Conclusion
Understanding these income thresholds and the nuances of MTD for Income Tax is the first step towards a smooth transition to digital tax reporting. By being aware of when the requirements apply to you, you can proactively prepare and ensure a seamless shift to this new way of managing your tax obligations. Contact us to learn how we can help you.
- Even if you inherited a property, you must comply if your rental income exceeds the threshold.
- Example: A landlord earning £52,000 from an inherited property must register for MTD from April 2026.
