🚫 MYTH: “The MTD income thresholds are too confusing – I have no idea when I’ll be forced to join or how they calculate my qualifying income!”
The phased introduction of MTD with different income thresholds over multiple years has created widespread confusion. Many sole traders and landlords feel overwhelmed trying to understand which threshold applies to them, when they’ll be required to join, and exactly how HMRC calculates “qualifying income.” The complexity increases when people have multiple income sources or seasonal businesses, leading to uncertainty about their MTD obligations.
✅ REALITY: The MTD income thresholds follow a clear, logical structure, and HMRC provides specific guidance on exactly how qualifying income is calculated.
The Three-Phase Rollout Explained Simply
MTD income tax will apply from April 2026 to those with turnover from self-employment and property above £50,000, from April 2027 for those above £30,000, and from April 2028 for those above £20,000 ICAEWAssociation of Taxation Technicians.
Phase 1 – April 2026: £50,000+ qualifying income Phase 2 – April 2027: £30,000+ qualifying income
Phase 3 – April 2028: £20,000+ qualifying income
What Counts as “Qualifying Income”
The turnover test is applied to turnover/gross income (not profits) from self-employment and property only, added together, for each taxpayer individually TAXguide 04/25: Making Tax Digital for income tax – questions from 2025 webinars | ICAEW.
Included in Qualifying Income:
- Self-employment turnover (before expenses)
- UK property rental income (before expenses)
- Overseas property rental income (before expenses)
NOT Included:
- Employment salary
- Dividend income
- Pension income
- Investment income
- Partnership income (different rules apply)
How HMRC Determines Your Start Date
When MTD income tax starts in April 2026, the £50,000 turnover test will be applied to the information in the 2024/25 tax returns that are due to be filed by 31 January 2026 TAXguide 04/25: Making Tax Digital for income tax – questions from 2025 webinars | ICAEW.
The process is straightforward:
- You file your 2024/25 tax return by 31 January 2026
- HMRC reviews your qualifying income from that return
- If it exceeds £50,000, you join MTD from April 2026
- HMRC will write to confirm your obligation
Specific Tax Return Boxes Used
HMRC will look at the following Self-Assessment return boxes: Self-Employment Turnover (SA103F Box 15 or SA103S Box 9), Self-Employment Other Income, UK Property Income (SA105 Box 20), Other UK Property Income, and for 2024/25 only, Furnished Holiday Let Income How does the income exemption work for MTD? | The Association of Taxation Technicians.
This removes guesswork – HMRC uses specific, clearly defined figures from your tax return.
Multiple Income Sources Made Simple
If you have both self-employment and property income, HMRC adds them together:
Example:
- Self-employment turnover: £35,000
- Property rental income: £20,000
- Total qualifying income: £55,000
- Result: Join MTD from April 2026
New Business Start-Ups
If you became self-employed during the tax year, the figure will need to be adjusted to estimate a full year’s worth of income Making Tax Digital – Frequently Asked Questions | The Association of Taxation Technicians.
Example:
- Started self-employment 1 January 2025
- Earned £30,000 in three months (Jan-Mar 2025)
- Annualised estimate: £30,000 × 4 = £120,000
- Result: Join MTD from April 2026 (exceeds £50,000 threshold)
Once You’re In MTD
A taxpayer whose turnover/gross income exceeds £50,000 in 2024/25 but drops below £50,000 in 2025/26 will still need to comply with MTD income tax requirements from April 2026 ICAEWICAEW.
You don’t automatically leave MTD if income drops. A taxpayer that is in MTD income tax and whose turnover/gross income falls below threshold for three successive tax years can claim exemption from the start of the following tax year TAXguide 04/25: Making Tax Digital for income tax – questions from 2025 webinars | ICAEW.
HMRC Communication Process
HMRC are writing to taxpayers during spring/summer 2025 where their 2023/24 tax return showed income close to or over £50,000, assuming income remains similar in 2024/25 Making Tax Digital – Frequently Asked Questions | The Association of Taxation Technicians.
More definitive communications follow after 31 January 2026 based on actual 2024/25 returns.
Practical Planning Steps
Check Your Current Position: Review your 2023/24 tax return to estimate whether you’ll exceed the £50,000 threshold in 2024/25.
Monitor Income Growth: If you’re approaching threshold levels, start researching MTD software options and consider early voluntary sign-up.
Professional Advice: If your income fluctuates significantly or you have complex circumstances, consult with a tax professional for personalised guidance.
The Benefits of Knowing Your Position
Understanding MTD thresholds enables proactive planning rather than reactive compliance. You can:
- Budget for software costs in advance
- Choose optimal timing for business investments
- Take advantage of voluntary early sign-up for testing and support
- Align MTD preparation with natural business planning cycles
Exemptions and Special Cases
Some taxpayers qualify for exemptions or deferrals, including those with digital exclusion needs or certain complex circumstances. Applications for exemption will not open until shortly before the first taxpayers are mandated from April 2026 Making Tax Digital – Frequently Asked Questions | The Association of Taxation Technicians.
The MTD threshold system is designed to provide clarity and predictability. By understanding these straightforward rules, you can plan confidently for your business’s digital tax future while focusing on growth and success.
Contact AHBS Limited: 0115-932-9888 or book: https://tidycal.com/simonahbs/mtd
