Every tax season, sole traders and landlords ask the same question: do I actually need to worry about the mtd income tax threshold this year, or is this someone else’s problem? At Top Bookkeeping Services, we get this question constantly because the rules genuinely are confusing. The threshold is based on gross income, not profit; it looks back at last year’s tax return, and HMRC won’t tell you automatically.
This guide breaks down the mtd income tax threshold in plain English, walks through three realistic worked examples the way we’d explain them to a client sitting across the desk, and answers the questions people actually ask us, like whether rental income counts, and what happens if your income drops below £50,000 next year.
What Is MTD for Income Tax?
Making Tax Digital for Income Tax (MTD for Income Tax, sometimes called MTD ITSA) replaces the single annual Self Assessment return with quarterly digital updates, submitted through HMRC-recognised software, followed by a Final Declaration at the end of the tax year. It’s the biggest change to personal tax reporting since Self Assessment itself began. Understanding the mtd income tax threshold now means no unpleasant surprises when your accountant reviews your 2024/25 return.
According to GOV.UK, the rollout is phased by income:
- From 6 April 2026: qualifying income over £50,000 (based on your 2024/25 tax return)
- From 6 April 2027: qualifying income over £30,000 (based on your 2025/26 tax return)
- From 6 April 2028: qualifying income over £20,000 (based on your 2026/27 tax return)
If your income sits below £20,000, you’re not currently in scope under any phase.
Do I Need to Use Making Tax Digital? Understanding Qualifying Income
The single most common source of confusion is what actually counts toward the threshold. According to LITRG, qualifying income only includes gross income (before expenses) from:
- Self-employment (sole trader trading income)
- UK and/or overseas property letting
It does not include:
- Employment income (PAYE salary)
- Pension income
- Dividends or savings interest
- Partnership income (for now this is expected to be brought into scope later)
So if you ask, “Do I need to use Making Tax Digital?” and your only income is a PAYE salary plus some savings interest, the answer is simply no. MTD for Income Tax has nothing to do with you, regardless of how much you earn in total.
The MTD £50,000 Threshold, Explained
The mtd 50000 threshold is based on gross income your total turnover before deducting expenses not your profit. This trips a lot of people up. A landlord with £55,000 in rent but only £15,000 in actual profit after mortgage interest and repairs is still over the threshold, because your qualifying income MTD calculation looks at turnover, not take-home profit.
It’s also a combined threshold. If you have both self-employment and rental income, HMRC adds them together. Earn £35,000 self-employed and £20,000 from a rental property, and your combined qualifying income is £55,000, comfortably over the mtd income tax threshold, even though neither source alone would trigger it.
Three Worked Examples
Numbers make this clearer than definitions ever can. Working out your qualifying income MTD position is often easier with real examples in front of you, so here’s how we’d actually explain the mtd income tax threshold to three different clients.
Example 1: Priya, self-employed graphic designer
Priya’s 2024/25 Self Assessment return shows £62,000 in gross self-employment turnover, with £18,000 in allowable expenses, leaving £44,000 profit. Because the threshold looks at gross turnover (£62,000), not profit, Priya is over the mtd 50000 threshold. Verdict: Priya must join MTD for Income Tax from April 2026 and start keeping digital records and submitting quarterly updates.
Example 2: David, landlord with two rental properties
David has no self-employment income but earns £48,000 in gross rental income across two properties in 2024/25. He also has a £60,000 PAYE salary from his day job, but that doesn’t count toward qualifying income. His qualifying income is £48,000 under the £50,000 threshold. Verdict: David does not need MTD for Income Tax from April 2026, though he should watch his numbers closely, since the threshold drops to £30,000 in 2027.
Example 3: Amara, sole trader plus landlord
Amara runs a small catering business (£32,000 gross turnover) and rents out one property (£21,000 gross rental income) in 2024/25. Individually, neither figure hits £50,000. Combined, her qualifying income is £53,000. Verdict: Amara is over the mtd income tax threshold and must join from April 2026. Even though each income stream looks modest on its own, this is exactly the kind of case that catches people out.
Does Rental Income Count Toward the MTD Threshold?
Yes. Gross rental income is treated the same as self-employment turnover for the purposes of qualifying income. If you’re asking, Do I need to use Making Tax Digital as a landlord specifically, the answer depends entirely on your gross rent received, combined with any self-employment income you also have, not your profit after mortgage interest, letting agent fees, or maintenance costs.
What If My Income Drops Below the Threshold?
This is one of the questions we get asked most, and the answer surprises people. According to LITRG, once you’re required to use MTD for Income Tax, a single year where your qualifying income dips below the mtd 50000 threshold does not let you opt out. You must remain in MTD unless your qualifying income stays below the relevant threshold for three consecutive tax years; only then can you formally leave the scheme, and even then it’s optional to stop, not automatic. In short, your qualifying income MTD status is sticky; it doesn’t reset just because one year was quieter than the last.
How to Check If You’re Affected
- Pull your 2024/25 Self Assessment tax return (or complete it early if you haven’t yet)
- Add together your gross self-employment turnover and gross property income
- Compare the total to £50,000
- If you’re over, start researching MTD-compatible software now; HMRC will not sign you up automatically
- If you’re close to the mtd income tax threshold but unsure, GOV.UK’s income-checking tool can confirm your qualifying income for the relevant tax year
Are There Any Exemptions?
A small number of people can apply for an exemption from the digital filing requirements, even if their income is over £50,000. According to GOV.UK, this generally covers cases such as:
- Religious grounds that are incompatible with using electronic communications
- Age, disability, or remoteness of location making digital record-keeping impractical
- Insolvency practitioners and certain non-resident companies
Exemption isn’t automatic; you’ll usually need to contact HMRC directly and explain your circumstances, and some digital exclusions are granted on a case-by-case basis rather than as a blanket rule. If none of these apply to you, the safest assumption is that the rules apply as described above, and it’s worth starting your software search sooner rather than later.
What Software Will I Need?
You can’t submit quarterly updates through the old Self Assessment portal. HMRC requires “compatible software,” which usually means a bridging tool or a full cloud accounting package such as Xero, QuickBooks, FreeAgent, or Sage. Many of these already offer free or low-cost tiers built specifically for sole traders and landlords who are newly in scope. If you currently keep a spreadsheet, most software providers offer a bridging option that lets you keep your spreadsheet and simply submit the totals digitally each quarter, which can ease the transition considerably.
Conclusion
The mtd income tax threshold isn’t complicated once you strip away the jargon: if your combined gross self-employment and property income was over £50,000 on your 2024/25 return, you’re in from April 2026; if it was £50,000 or under, you’re not yet. As our worked examples show, the details around gross versus profit, and combined income streams, are where most people get caught out. At Top Bookkeeping Services, we help sole traders and landlords work out exactly where they stand and get their software set up well before their filing deadline. If you’re still unsure whether MTD applies to you, our team is happy to check your numbers with you.
Frequently Asked Questions
Does rental income count toward the MTD threshold?
Yes. Gross rental income counts toward your qualifying income when HMRC calculates whether you meet the MTD for Income Tax threshold.
What if my income drops below £50,000 next year?
You may still need to use MTD for Income Tax. The rules depend on your qualifying income and the applicable threshold.
Is the £50,000 MTD threshold based on profit or turnover?
It’s based on gross qualifying income before expenses, not profit.
Does MTD apply if I only have a PAYE salary?
No. Employment income alone does not make you subject to MTD for Income Tax.
When do I need to start MTD for Income Tax?
If your qualifying income was over £50,000 in 2024/25, you need to follow MTD for Income Tax from 6 April 2026. The threshold then falls to £30,000 in April 2027 and £20,000 in April 2028.