Is the MTD threshold based on profit or turnover?

If your turnover for the year being tested is above that year's threshold, you have to use Making Tax Digital for Income Tax even where your profit is far below it. That is the core of the answer, and it is the point sole traders and landlords most often get wrong. Two further things change the outcome for a lot of people, and both are below: every trade and every property you have is added into one figure first, and the year tested is two tax years back, not the one you are living in. A separate set of HMRC exemptions can also take you out whatever your figure.

It is turnover. Making Tax Digital for Income Tax is decided on your gross income before expenses, not on the profit you are taxed on. HMRC's wording is blunt: "This is the amount before expenses (also known as turnover)."

The term HMRC uses is qualifying income

Qualifying income is HMRC's name for the figure the thresholds are tested against. Gov.uk defines it as "your total income from self-employment and property" and adds that "this is the amount before expenses (also known as turnover)". HMRC's terminology guide for software developers says the same thing in different words: it is assessed "using their gross income (also called 'turnover') before they deduct any expenses".

The law behind it is regulations 25 and 26 of The Income Tax (Digital Obligations) Regulations 2026: regulation 25 defines qualifying income as the sum of the income from each relevant activity required to be included in your return, and regulation 26 sets out how each of those amounts is measured. For each business or property source, the amount counted is "the amount included in the return before any deductions". There is one narrow exception in regulation 26 itself: where you are not required to put a gross figure on your return, the after-deductions figure in the return is used instead. For most sole traders and landlords, a gross figure is what the return shows.

The same business, two very different numbers

Sam is a self-employed joiner. Priya lets one flat. Both look at their tax return and see two figures: what came in before costs, and what was left after them. Only the first one matters here.

Priya's £19,000 is repairs, agent fees, insurance and the like. For a residential let, mortgage interest is not one of them — see 'Almost nothing comes off before the comparison'.

Sam's figures are for 2024-25. His qualifying income is £62,000, which is more than £50,000, so he has been in MTD for Income Tax since 6 April 2026 — even though his profit was a third of that. Priya's figures are for 2025-26. Her 2024-25 turnover was also £28,000, so the £50,000 threshold never caught her, and her 2025-26 qualifying income of £28,000 is not more than £30,000, so the April 2027 start does not apply either. On those numbers she should plan on being in from 6 April 2028: her 2026-27 turnover would have to fall from £28,000 to £20,000 or less to keep her out. Her £9,000 profit never enters the calculation.

The three thresholds, and which return each one looks at

Work down this table from the top row, not from the year you are in. The first row your figure clears is your start date — and once you have started, a single later year below the threshold does not take you back out (see 'Once you are in'). You are outside only if you clear no row at all — for now. The test does not stop after 2028: regulation 27 sets the £20,000 figure for 2026-27 "and any subsequent tax year", and gov.uk says HMRC "will review your Self Assessment tax return and check your qualifying income each tax year". So every later year is tested the same way, two years in arrears. Someone at £16,000 in 2026-27 who reaches £24,000 in 2027-28 is mandated from 6 April 2029. Being under the line this year means not yet, not never. Each row is a separate start date; this guide calls them waves, though HMRC does not use that word.

Two details in that table are easy to misread. First, there is a two-year gap: the April 2026 start was tested against the 2024-25 return, not 2025-26. Second, the test is more than, not "or more". Qualifying income of exactly £50,000 is outside the £50,000 wave, because the regulations grant an exemption where the figure is "not more than" the threshold. The £20,000 figure is also not a one-off step for 2028: regulation 27 sets it for 2026-27 "and any subsequent tax year", so it is the standing floor from then on.

What being in actually means. Keep your records digitally in compatible software; send a quarterly update four times a year, with deadlines of 7 August, 7 November, 7 February and 7 May; then submit your tax return through that same software by 31 January as before. The updates are cumulative — each one restates the whole year to date, so a later update corrects an earlier one. It is more filing, not more tax.

If that top row is you and you have not signed up, the first 2026-27 quarterly update deadline was 7 August 2026. HMRC says there are no penalties for missing a quarterly update deadline for the 2026-27 tax year — but the updates still have to be sent, because you cannot submit your tax return until they are. That concession covers quarterly updates only: a late tax return still attracts a penalty point, and late payment penalties are unaffected. Those percentages depend on the year: for 2026-27, 3% of the tax outstanding at day 15 and a further 3% at day 30; for 2027-28, each of those rises to 4%. In both years an annual rate of 10% is then charged daily from day 31 until the tax is paid, for up to 2 years. In your first year of the new penalties you have 30 days from the due date to pay in full or contact HMRC to set up a payment plan before a late-payment penalty applies. Contact HMRC or an accountant rather than waiting.

Almost nothing comes off before the comparison

Because qualifying income is normally measured "before any deductions", none of the following reduce it:

• Ordinary business or property expenses — stock, materials, fuel, insurance, agent fees, repairs.
• The £1,000 trading allowance and the £1,000 property allowance. These reduce taxable profit, not turnover. A landlord with £20,500 of gross rents cannot claim the property allowance to land under £20,000.
• Capital allowances, including the Annual Investment Allowance. A trader with £55,000 of turnover who buys a £30,000 van and claims AIA still has £55,000 of qualifying income.
• Residential mortgage interest. It does not come off the turnover figure, and since 2020-21 it has not been an expense at all for residential landlords — it is a basic-rate tax reducer.

Worth knowing where that comes from: the gov.uk qualifying income page does not name the trading or property allowance either way. The authority for leaving them out is the statutory phrase "before any deductions" in regulations 25(3)(a) and 26(a)(i) of the 2026 Regulations, which makes no exception for them. HMRC has not addressed these two allowances directly in published guidance, so this is a reading of the legislation rather than a stated HMRC position.

Two statutory qualifications sit alongside this. Where you are not required to return a gross figure — most commonly a jointly let property where you are notified only of your share after expenses — regulation 26(a)(ii) uses the after-deductions figure in the return instead.

The second is regulation 25(2), and it is widely misread. It applies where no return was required or made for the year being tested, and it does not simply write your qualifying income down to nothing. It has two limbs, in order: (a) where you were required to send quarterly updates for that year, your qualifying income is the sum of the income from each relevant activity required to be included in the latest of those updates; and only (b) in any other case is it nil. So if you are already in MTD, a year with no tax return does not zero your figure — it is measured on your last quarterly update instead. Limb (b) is for someone with no return and no update obligation at all. HMRC's opt-out guidance works this way too, testing the final year on "£20,000 or less based on your fourth quarterly update for 2028 to 2029". A missing return is not a route out of Making Tax Digital, and stopping your updates on that basis would leave you unable to file.

All your self-employment and property income is added together

Qualifying income is one figure per person, not one per business. HMRC's own example adds "£25,000 from rental income" to "£27,000 from self-employment income" and concludes that "your total qualifying income would be £52,000". Neither source on its own is anywhere near £50,000, but the combined figure crosses it.

• Several businesses or several properties all fall into the same total. Three trades at £20,000 each is £60,000, not three separate £20,000 tests.
• Foreign property counts if you are UK tax resident, because that income belongs on your UK return. (A non-UK resident is tested differently: only income actually declared on the UK return counts.)
• Jointly owned property counts as your share only. A property owned equally with a sibling generating £50,000 gives you £25,000. If you are only notified of your share after expenses have been taken off, HMRC says it will assess that net figure.
• A source that has ceased still counts for the year it was on the return, if you have another continuing self-employment or property source. If every source has ceased you must tell HMRC before the start of the next tax year — gov.uk is blunt that if you do not, "you will need to use Making Tax Digital for Income Tax". If you are already in, regulation 6 wants that notice no later than the quarterly update deadline for the period the cessation falls in, which is usually earlier.
• Part-year trading is annualised. Six months of trading at £12,000 is normally treated as £24,000, though regulation 26(d) allows a different, just and reasonable basis where straight scaling would "work unreasonably or unjustly". HMRC does this automatically for sole traders where it has the information; for property income, the annualising is left to you.

What does not count towards the figure

Gov.uk lists these as outside qualifying income: employment (PAYE), your share of profit from a partnership as an individual partner, dividends (including those from your own company), a State Pension, and private pensions. That list is introduced with "All other sources of income do not count towards your qualifying income", so it is illustrative rather than closed. Savings interest and capital gains are outside too, but by way of that catch-all — HMRC does not name them.

Also stripped out: basis period reform transition profits, income from REITs and PAIFs, qualifying care receipts (foster and kinship carers), amounts received by a trustee in that capacity, payments to visiting performers under section 13(2) ITTOIA 2005, and one-off transactions in UK land that do not continue beyond a single tax year. Averaging relief — for farmers and creative artists — does not change the figure either way. One thing that does count, and surprises people: personal self-employment or property income that a partnership tells you about, such as disguised investment management fees, is inside your own figure even though your profit share is not.

The VAT registration threshold is a different threshold entirely

The VAT registration threshold — £90,000 at the time of writing — turns up in MTD guidance and gets mistaken for an entry point. Gov.uk states the figure as £90,000. It is the VAT registration threshold, so if that threshold changes this figure would be expected to follow — check gov.uk rather than relying on the number here. It is not an entry point at all: it plays no part in deciding whether you are in MTD for Income Tax. What it decides is how much detail your digital records and quarterly updates need.

Gov.uk allows less-detailed categorisation — broadly, a total income figure and a total expenses figure per source — where you have "total UK property turnover of less than £90,000", "turnover from a source of self-employment that is less than £90,000", or foreign income. Watch this line as closely as the mandation one. Gov.uk says that "if your turnover reaches £90,000, you will need to categorise all digital records for that income source in full before you can send your quarterly update, including those from the beginning of the current tax year in the following tax year" — so crossing the line reaches backwards to 6 April of the year you are in, and carries on into the year after. And "if you do not categorise your records for that income source in full, you'll not be able to send quarterly updates or submit your tax return".

If you are close to the line

• The number to look at is the turnover box on the relevant year's return, added across every trade and property, not the profit figure at the bottom.
• VAT can tip you over. Gov.uk says that if you use the cash basis and are VAT registered, "You can choose to include or exclude VAT when you declare your business income. If you include it, then it will count towards your qualifying income." That is a genuine choice, not a trick of presentation. It is not, though, a lever to pull when a threshold is near: it should follow how you actually account for and declare your income, and stay consistent from year to year. If the VAT-inclusive and VAT-exclusive figures fall either side of the line, take advice before changing anything.
• Amendments are treated asymmetrically. An amendment that takes you below the threshold can take you out; one that pushes you above it, made after the start of the tax year concerned, is ignored for that year (regulation 26(c)). This describes how HMRC treats a correction, not a planning option — a return may only be amended to put right a genuine error, so speak to an accountant before amending anything.
• No letter does not mean no obligation. HMRC writes to people it identifies as above the threshold, but the guidance is explicit that if no letter arrives, "it is still your responsibility to check". Gov.uk also says to contact HMRC if you do not think you need to use the service.
• Being over the threshold is not the end of the test. Some people are outside MTD whatever their income. You are automatically exempt if you did not have a National Insurance number before the start of the tax year, and there are further automatic exemptions for personal representatives, trusts filing SA900, non-resident companies filing SA700, Lloyd's members using SA103L for their underwriting business, and — the one most often left off summaries — anyone who is not physically or mentally capable of providing information to HMRC and has either given power of attorney to someone in the UK to act on their behalf, currently in place, or a legally appointed deputy, controller or guardian in place.
• Some of those are deferrals, not permanent exemptions. Gov.uk files ministers of religion using SA102M, Lloyd's members using SA103L for self-employment or property income, and people who received or transferred Married Couple's Allowance or Blind Person's Allowance under "automatic exemptions that last beyond April 2027" — and adds that you "will need to use Making Tax Digital for Income Tax in the future", with the timeline to be "set out at a later date". No end date has been published, so treat these as postponements of unknown length, not a permanent way out. A shorter deferral, covering 2026-27 only, applies where your 2024-25 return claimed averaging relief on SA103, claimed qualifying care relief as a foster or kinship carer, or included SA107 or SA109; that group comes in from 2027-28 if their 2025-26 qualifying income was above £30,000.
• Digital exclusion is applied for, not automatic. If using software is not reasonable for you — because of your age, a health condition or disability, no internet access at your home or business, or religious beliefs — you can apply to be treated as digitally excluded, by phone or letter rather than online. HMRC will not accept an application whose only reason is that you previously filed on paper, are unfamiliar with software, have few records, or that MTD costs extra time or money.
• Being exempt does not remove the return. Anyone outside MTD, for whatever reason, still reports income and gains in a Self Assessment tax return as normal.

Sources: HMRC and gov.uk guidance — "Work out your qualifying income for Making Tax Digital for Income Tax", "Find out if and when you need to use Making Tax Digital for Income Tax", "Use Making Tax Digital for Income Tax" (create digital records; if your circumstances change), gov.uk guidance on exemptions from Making Tax Digital for Income Tax and on penalties for late updates and late payment, HMRC's Making Tax Digital for Income Tax digital record-keeping direction, and HMRC's MTD terminology guide for software developers. Legislation: The Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336), regulations 22 to 27, on legislation.gov.uk. Note that the earlier Income Tax (Digital Requirements) Regulations 2021 were revoked on 1 April 2026, so older commentary citing them is citing replaced law. This is general information, not tax advice.

General information, not tax or financial advice. Always confirm your own position with HMRC or a qualified adviser. This article was last checked against published gov.uk guidance on 22 August 2026. Rules and figures can change — always confirm your own position with HMRC or a qualified adviser.