MTD Income Tax Threshold Explained: £50k, £30k and £20k

2026-10-21·The AI Ledger editorial team

As of 21 October 2026, the Making Tax Digital for Income Tax threshold is £50,000 of qualifying income from April 2026, £30,000 from April 2027 and £20,000 from April 2028. Qualifying income is gross turnover from self-employment and property added together, before expenses, taken from an earlier tax year's return. HMRC's guidance on this was last updated on 26 March 2026.

TL;DR:

  • The thresholds step down in three stages: over £50,000 from 6 April 2026, over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028, each tested against an earlier tax year.
  • Qualifying income is gross income before expenses, so a sole trader with £32,000 of turnover and £18,000 of profit is inside the £30,000 group.
  • Employment, dividends, pensions and a partner's share of partnership profit do not count, but self-employment and property income do, and they are added together.
  • Missed quarterly updates carry no penalty for 2026 to 2027, but later years use a points system with a £200 penalty at four points.
  • HMRC began signing up anyone it considers in scope from September 2026, so a client who ignores the letters can still end up enrolled.

Table of Contents

What is the MTD for Income Tax threshold, and when does each one start?

There are three thresholds, and each applies to a different tax year of income. The one that matters first is the one that decides when a client must start. HMRC's own guidance sets out the schedule in Find out if and when you need to use Making Tax Digital for Income Tax.

Qualifying income overTax year testedMust use MTD for Income Tax fromPosition on 21 October 2026
£50,0002024 to 20256 April 2026Live. Second quarterly update due 7 November 2026
£30,0002025 to 20266 April 2027Six months away. HMRC confirmed on 5 October 2026
£20,0002026 to 20276 April 2028Confirmed in HMRC's October 2026 press release

The test is "over" the threshold, not "at or above". HMRC's exemption guidance says that a person whose qualifying income is £20,000 or less is automatically exempt, and that exemption is described as permanent unless circumstances change.

Partnerships are not yet in. HMRC says partnerships "will also need to use" the service in future and that it will set out the timeline later. That matters for practices, because many clients have both a partnership share and a sole trade or rental property, and only the second group counts today.

The headline numbers for the next group are large. In its 5 October 2026 press release, HMRC estimates that around 1,077,000 more sole traders and landlords will join from April 2027, based on its analysis of 2024 to 2025 Self Assessment returns.

Pro Tip: Put the three start dates in your client tracker as three separate columns, one per threshold, rather than a single "in MTD" flag. A client who is safely under £30,000 for 2025 to 2026 can still be caught by the £20,000 test one year later.

What counts as qualifying income?

Qualifying income is your total income from self-employment and property, taken before expenses. HMRC's guidance, Work out your qualifying income for Making Tax Digital for Income Tax, describes it as "the amount before expenses (also known as turnover)", based on the return submitted for the relevant earlier year.

This is the point that catches clients out. Profit is not the test. A freelancer who turns over £32,000 and claims £14,000 of expenses reports a profit of £18,000, but their qualifying income is £32,000.

Sources are added together. HMRC gives its own example: £25,000 of rental income plus £27,000 of self-employment income gives qualifying income of £52,000. Neither source is over £50,000 on its own, but the total is.

A few further rules from the same page are worth knowing:

  • Jointly owned property: only your share counts. If a property earns £50,000 and you and a sibling take equal shares with no other income, your qualifying income is £25,000.
  • Foreign property: for a UK tax resident, foreign property income on the return counts, so a UK sole trader who rents out a flat in France has both streams included.
  • Short first periods: HMRC annualises a sole trader's income where it has the information. Six months of trading is doubled, so £14,000 earned over six months is treated as £28,000. Property income must be annualised by the taxpayer.
  • VAT: a VAT-registered cash basis user can choose whether to include VAT in declared business income. If it is included, it counts towards qualifying income.

What does not count towards the threshold?

Only self-employment and property income count, and HMRC lists the exclusions plainly. Employment income through PAYE, dividends (including from your own company), the State Pension and private pensions do not count towards qualifying income.

Three exclusions matter most in practice:

  1. A partner's share of partnership profit. Your share as an individual partner is not qualifying income, and you do not need to keep digital records or send quarterly updates for it. You must still include it on your tax return. Personal self-employment or property income that a partnership reports to you does count.
  2. Basis period reform transition profits. Transition profits assessed in 2024 to 2025 and the next four tax years are excluded from qualifying income.
  3. UK REIT and PAIF income, and one-off UK land transactions. Income from UK Real Estate Investment Trusts and Property Authorised Investment Funds does not count. Income taxed as a trade under the transactions in UK land rules does not count if it falls in a single tax year and is not a continuing source.

Averaging relief does not change qualifying income, and qualifying care relief received by foster or kinship carers is excluded, though those carers should read the exemption guidance.

An employee with a £45,000 salary and a side business turning over £18,000 therefore has qualifying income of £18,000, and sits below every threshold in the table above. That is our own worked example, but it follows directly from HMRC's list of what counts.

Pro Tip: Ask clients for turnover, not profit, when you do a threshold check in the autumn. Take the turnover figure for each self-employment and property source on the relevant return, then add them.

How do you work out qualifying income for a real client?

Take the figures from the return that HMRC will test, add self-employment and property turnover, and compare the total with the threshold. Do not subtract expenses and do not include anything from the excluded list.

A simple routine for a practice:

  1. Identify the tax year the threshold tests. For an April 2027 start, that is the 2025 to 2026 return. For April 2028, it is 2026 to 2027.
  2. Add gross turnover from every self-employment source and every property source on that return, including sources that have since ceased.
  3. Apply the share rule for jointly owned property and remove any partnership profit share.
  4. Compare the total with the threshold and record the result and the date you checked.
  5. Check for exemptions, because a client can be over the threshold and still be exempt.

Ceased sources need care. HMRC says that income from a source that ended after the last return still counts if the client has another continuing source of self-employment or property income. If every source ended before 6 April 2026, the client will not need to use the service, but HMRC will sign them up on the information it holds unless they tell it, so the client should contact HMRC.

Exemptions are separate. HMRC's exemption guidance describes automatic exemptions, such as having no National Insurance number before the start of the tax year, and exemptions that need an application, such as digital exclusion. An exempt client must still file a Self Assessment return.

Which tax year does HMRC test, and what if the figures change?

HMRC tests an earlier year's return. To decide who needed to start in April 2026, it reviewed 2024 to 2025 Self Assessment returns, and anyone with qualifying income over £50,000 should have received a letter. The guidance is explicit that a missing letter does not remove the duty: it remains the taxpayer's responsibility to check.

Changes to a return can move a client in or out. HMRC's qualifying income guidance sets out the timing:

  • Change before the start of a tax year: if it takes qualifying income above the threshold, the client must use MTD for Income Tax for the coming year. If it takes it below, they do not.
  • Change after the start of a tax year: if it takes qualifying income below the threshold, the client does not need to use the service for that year, and may continue voluntarily or opt out. If it takes income above the threshold, it is not considered for that year.

Once a client is in, they can opt out if qualifying income falls below the threshold for three tax years in a row. That is a long wait, so it makes sense to check before enrolling a client whose income is close to the line.

HMRC also says that a client still needs to submit a Self Assessment tax return for the tax year before they start. Quarterly updates are summaries, not additional returns, and they sit alongside the final return rather than replacing it.

What happens if a client misses a quarterly update or does not sign up?

For 2026 to 2027 nothing financial happens for a late quarterly update, but the position changes after that. HMRC's penalties guidance says there are no penalties for missing a quarterly update deadline in 2026 to 2027, though digital records and updates are still needed before the return can be submitted.

The quarterly deadlines are 7 August, 7 November, 7 February and 7 May. For tax years after 2026 to 2027, each missed quarterly update or return deadline earns one penalty point, and the threshold is four points. At four points a £200 penalty applies, and a further £200 for each later missed deadline. Only one point can be earned per deadline, even with several businesses. Points for MTD for Income Tax are separate from VAT points.

Late payment penalties are separate and depend on how long the amount stays unpaid. In the first year of the new penalties, HMRC gives 30 days from the due date to pay in full or agree a payment plan. Late payment interest is unchanged.

Signing up is also not optional if a client is in scope. HMRC's sign-up guidance, updated on 13 October 2026, says that from September 2026 HMRC will start to sign up anyone who needs to use the service for 2026 to 2027 and has not signed themselves up. When it does, it uses only the information it already holds, which may not reflect changes since the last return. Agents and clients can sign up in advance and correct their details at that point.

Pro Tip: Do not wait for HMRC to enrol a client. A client signed up by HMRC may have the wrong income sources recorded, and you then spend time fixing records before the first update is due.

Which software can handle MTD for Income Tax for clients over the threshold?

Any client over the threshold needs HMRC-recognised software, and a practice usually needs more than one route. The AI Ledger directory lists several tools that cover parts of the job. These are listing summaries verified against vendor sites on the dates shown, not hands-on tests.

ToolEditor scorePricing summaryMTD for Income Tax roleLast verified
Dext4.7 out of 5Practice plans from £2.50 per client per month (Solo, five-client minimum)Capture; listing names MTD for Income Tax software10 October 2026
TaxCalc4.6 out of 5Annual licences by client band, excluding VAT, Tax Return Production from £187Describes itself as HMRC-recognised for MTD for Income Tax; MTD Quarterly Filer10 October 2026
Briefcase4.1 out of 5From £19 to £119 per month, plus VATCapture and reconciliation with MTD for Income Tax quarterly filing10 October 2026
Sage Copilot4.0 out of 5Included in Sage Accounting at no extra chargeMTD for Income Tax agent in Sage for Accountants, announced September 202510 October 2026

The table shows roles, not rankings. TaxCalc is the compliance engine, so its fit depends on whether you file returns in-house. Dext captures documents rather than filing updates. Briefcase can act as its own ledger or sit on Xero and QuickBooks. Sage Copilot only helps clients already on Sage.

Check the vendor's current status on HMRC's software list before you commit, because recognition and features change. Our tax preparation category and the finder filter by size and ledger, and compare puts two tools side by side.

Why does independent evidence matter when choosing MTD for Income Tax software?

Vendors describe their MTD support in the best light, and the gap between "recognised" and "can finish the year" is where practices lose time. A product may send quarterly updates but not support the final return, a point we cover in our year-end check for MTD software.

Independent editor scores and last-verified dates show when a listing was last checked against the vendor's site, so you can see how old the claim is. They do not replace a trial on your own clients. The AI Ledger scores are editorial, are not affected by payment from vendors, and are published alongside pricing so that you can compare like with like. Browse the full directory and read the verdict as a starting point, then test with two or three real client files before moving anyone.

Realistic expectations: the threshold test is mechanical, the client conversations are not

The arithmetic takes minutes; getting clients to hand over turnover figures, accept quarterly deadlines and choose software takes months. Start the conversations in the autumn, expect some clients to be surprised that profit does not decide it, and budget for the clients who fall just over the line.

Find your next MTD for Income Tax tool through The AI Ledger

Start with the tax preparation category for filing and compliance tools, then use the finder to narrow by practice size and the ledgers your clients use. Each listing shows its editor score, pricing summary and the date it was last verified, so you can see how current the information is before you spend time on a trial.

Sources

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