What Is the Threshold for Making Tax Digital?
The threshold for Making Tax Digital (MTD) is an important consideration for anyone earning income outside of standard PAYE employment. As HMRC continues its move towards a fully digital tax system, more sole traders and landlords are being brought into scope each year. Understanding when MTD applies to you, and what it involves, is key to staying compliant and avoiding unnecessary disruption.
As of December 2025, the rules around Making Tax Digital for Income Tax are clearer, but they are also expanding. This guide explains the current MTD thresholds, how they are applied, and what you should be doing now to prepare.
What Is Making Tax Digital?
Making Tax Digital is HMRC’s initiative to modernise how taxes are reported and managed in the UK. Instead of relying on paper records or manual tax returns, MTD requires taxpayers to keep digital records and submit information to HMRC using approved software. The aim is to reduce errors, improve accuracy, and encourage better record keeping throughout the year.
Many businesses are already familiar with MTD through VAT. Since April 2022, all VAT-registered businesses have been required to submit VAT returns digitally, regardless of turnover. MTD for Income Tax builds on this by extending digital reporting to self-employed individuals and landlords.
The MTD Income Tax Thresholds Explained
The key question for most people is when MTD becomes mandatory. This depends on your qualifying income, which is based on gross income rather than profit.
If your qualifying income exceeded £50,000 in the 2024–25 tax year, you will be required to comply with Making Tax Digital for Income Tax from 6 April 2026. This is the first major phase of the rollout and will affect many sole traders and landlords.
From 6 April 2027, the threshold will reduce to £30,000, based on income earned in the 2025–26 tax year. HMRC has also confirmed plans to reduce the threshold further to £20,000 from April 2028, bringing even more taxpayers into the system over time.
This staged approach is intended to allow taxpayers time to adapt, but it also makes clear that MTD will eventually apply to most people with business or property income.
What Counts as Qualifying Income?
Qualifying income generally includes gross income from self-employment and UK property before expenses are deducted. For sole traders, this means turnover rather than profit. For landlords, it means total rental income received during the tax year.
If you have multiple income sources, these are added together when assessing whether you exceed the threshold. For example, someone earning £32,000 from self-employment and £20,000 from rental property would have qualifying income of £52,000 and would fall within MTD from April 2026.
Because the threshold is not based on profit, many people are surprised to find they are affected sooner than expected. Reviewing your most recent tax return can help clarify your position.
What Happens Once You’re Above the Threshold?
Once you are within scope, Making Tax Digital is a legal requirement. You will need to keep digital records of your income and expenses and submit information to HMRC using MTD-compatible software.
Instead of one annual Self Assessment return, you will submit quarterly updates summarising your income and expenses. These updates do not calculate your tax bill and do not require payment at the time of submission. They are designed to give HMRC a clearer, more up-to-date view of your income.
At the end of the tax year, you will complete an End of Period Statement, followed by a final declaration that confirms your total taxable income and final tax liability. This final step replaces the traditional Self Assessment tax return.
Digital Record Keeping Under MTD
Digital record keeping means more than simply storing figures electronically. HMRC requires that records are kept using software that can maintain transaction-level data and submit information directly to its systems.
Spreadsheets can still be used, but only if they are linked to approved bridging software. Manual re-entry of figures is not allowed, as MTD is designed to create a digital link from records to submission.
Choosing suitable software like RentalBux is an important part of compliance, particularly where income is complex or involves both business and property sources.
Exemptions & Digital Exclusion
Not everyone who meets the income threshold will be required to comply with MTD. HMRC allows exemptions where someone is digitally excluded, such as due to disability, age, or lack of reliable internet access.
These exemptions must be applied for and approved by HMRC and are not granted automatically. Where an exemption applies, traditional non-digital submission methods can continue.
How Sterling & Wells Can Help
Making Tax Digital represents a significant change, especially for those used to filing one tax return each year. Sterling & Wells supports sole traders, landlords, and individuals at every stage of the MTD journey.
This includes assessing when MTD applies, helping clients choose and set up compliant software, and managing ongoing reporting requirements such as quarterly updates and final declarations. For those not yet mandated, early preparation support helps ensure a smooth transition when MTD becomes compulsory.
Conclusion
Making Tax Digital is not a temporary change. It is a long-term shift in how income tax is reported in the UK, and its scope will continue to widen over the coming years. Understanding the thresholds and knowing when the rules apply to you is essential for staying compliant.
Whether you are already above the threshold or expect to be affected in the near future, preparing early can reduce stress and prevent last-minute issues. With the right systems and professional support, MTD can be managed efficiently and with confidence.
Sterling & Wells remains committed to helping clients navigate Making Tax Digital clearly and compliantly, ensuring that digital tax works for you rather than against you.
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