The short answer
The MTD ITSA threshold is measured on gross income, not profit, and it steps down in three waves: above £50,000 from 6 April 2026, above £30,000 from 6 April 2027, and above £20,000 from 6 April 2028. HMRC adds together your self-employment turnover and your property income before any expenses, taken from the Self Assessment return you filed in the previous tax year.
That one sentence settles the question for most people, and it is also where most people get it wrong. A joiner turning over £64,000 with £43,000 of profit is measured on £64,000. A landlord collecting £34,000 of rent against £19,000 of mortgage interest is measured on £34,000. Profit does not appear in the test at all, which is why so many readers work out that they are outside the regime when they are firmly inside it.
Key takeaways
- Turnover decides it. Qualifying income is gross income from self-employment and property, before a single expense.
- Sources add together. £25,000 of rent plus £27,000 of trade turnover is £52,000 of qualifying income, and that person joined in April 2026.
- The measurement year runs two years behind. Your April 2027 position was fixed by the 2025 to 2026 return filed by 31 January 2027.
- Employment, pensions, dividends and partnership shares are excluded. A £70,000 salary alongside £11,000 of freelance work does not put you in scope.
- Part-year traders get annualised. Six months of self-employment income is doubled to find the qualifying figure.
- Joint owners are tested individually on their own share, so a jointly held property can put one owner in a wave and the other in the next one.
Not sure which side of the line you are on
Bring your last tax return to a free 15 minute call and we will work out your qualifying income the way HMRC does, and tell you your start date. Ten minutes usually settles it.
Book a free 15 minute threshold check or phone 029 2002 6505.
The three thresholds and the dates they bite
Making Tax Digital for Income Tax arrives in three waves. Each wave is defined by a qualifying income figure and by the tax return HMRC used to measure it.
Qualifying income above £50,000. Starts 6 April 2026. Measured on the 2024 to 2025 return.
Qualifying income above £30,000. Starts 6 April 2027. Measured on the 2025 to 2026 return.
Qualifying income above £20,000. Starts 6 April 2028. Measured on the 2026 to 2027 return.
The thresholds are exclusive, not inclusive. Qualifying income of exactly £50,000 did not bring anyone into wave one, and qualifying income of £20,000 or less keeps you outside the regime altogether. HMRC put more than 864,000 sole traders and landlords into wave one, and that group filed its first quarterly update by 7 August 2026.
The measurement lag is the part worth planning around. Your position for April 2027 was decided by a return filed in January 2027 for a year that ended in April 2026. By the time HMRC tells you, the year that decided it is long gone. Anyone whose turnover crossed £30,000 during 2025 to 2026 is already committed to an April 2027 start, whatever this year looks like. Our MTD ITSA accountants service page sets out what that start actually involves.
Why we keep teaching this
Buhir has been running Making Tax Digital sessions for local business owners since before the mandate landed. One attendee wrote afterwards that “It was really useful to hear all about how that will work and get lots of tips about how to get the most out of it for my small businesses.”
The plural in that sentence is the reason the sessions exist. Someone running two small businesses is measured on both added together, and that is the calculation people almost never do for themselves.
★★★★★ Jay B. in his own words, Google review, February 2026
Three waves, three dates
Above £50,000 from 6 April 2026, above £30,000 from 6 April 2027, above £20,000 from 6 April 2028.
What counts as qualifying income
HMRC includes the following in the qualifying income figure.
Counts towards qualifying income
- Self-employment turnover, from every trade you carry on as an individual, added together.
- UK property income, gross rent received before any costs.
- Foreign property income, where you are UK tax resident.
- Your share of jointly owned property income, calculated on your proportionate interest.
- VAT, where you use the cash basis, are VAT registered and have chosen to include it in your turnover figure.
- Income from bare trusts and interest in possession trusts paid directly to you.
- Continuing UK land transactions that run across more than one tax year.
- Disguised investment management fees and income-based carried interest, which affects a narrow group but affects it decisively.
Everything on that list is counted gross. Nothing is netted off. Two sources of £25,000 and £27,000 produce a qualifying income of £52,000, which is a wave one position even though neither source would have reached the threshold on its own.
What does not count
This list matters just as much, because a reader who includes the wrong income scares themselves into the wrong wave.
Does not count towards qualifying income
- Employment income through PAYE. A £70,000 salary is irrelevant to the test.
- Your share of partnership profit as an individual partner. Partnerships are not in the regime yet at all.
- Dividends, including dividends from your own company.
- State Pension and private pensions.
- Foreign property income where you are not UK tax resident, and foreign self-employment not declared on a UK return in the same circumstances.
- Distributions from UK REITs and PAIFs.
- Transition profits from basis period reform. The spread transition figure does not inflate your qualifying income.
- Qualifying care relief income, and income covered by averaging relief.
- One-off UK land transactions confined to a single tax year.
Two of those deserve a sentence each. Basis period reform pushed a lot of transition profit onto returns from 2023 to 2024 onwards, and it would be harsh for a one-off accounting adjustment to drag someone into quarterly filing. It does not. And a director drawing salary and dividends from a limited company is measured only on any separate trade or property they hold personally, which is why the limited company accountants page and the MTD material describe two different worlds.
Turnover, not profit, and why that changes who is in
The gross measure catches three groups particularly hard.
Landlords with mortgages. Finance costs no longer reduce property profit in the way they once did, and they never reduce qualifying income. A portfolio producing £48,000 of rent with £26,000 of interest has £22,000 of taxable profit and £48,000 of qualifying income. Wave one.
Trades with high material costs. A builder buying £40,000 of materials to invoice £75,000 has a modest profit and a wave one qualifying income figure. The same is true of anyone reselling stock.
People with several small income streams. Three sources of £12,000, £9,000 and £11,000 look individually trivial. Together they are £32,000, which is a wave two position from April 2027.
Where the rental figure itself is uncertain, and it often is once you start separating capital from revenue, our guide on working out rental profit properly takes the calculation apart line by line.
Worked example one: the freelancer who thought she was out
What her 2025 to 2026 return showed
What HMRC measures instead
She had assumed her £22,200 of profit kept her outside the regime, and separately assumed that the £18,000 salary would push her in. Both assumptions were wrong in opposite directions. The salary is excluded, the gross rent is included, and the answer is wave two.
Which tax year HMRC actually looks at
HMRC checks the Self Assessment return you submitted in the previous tax year. In practice that means a two year lag between the trading you did and the obligation it creates.
HMRC writes to people it believes are in scope, and those letters are worth reading rather than filing. They are not always right, because a return can contain a one-off figure that inflates turnover, and they are not the trigger for your obligation either. The obligation comes from the legislation and the figure, not from the letter. Signing up is a separate step that you or your agent has to take.
Two year lag
HMRC checks the Self Assessment return you submitted in the previous tax year.
The practical consequence for anyone reading this in August 2026 is that the 2025 to 2026 return, which decides the April 2027 wave, is the one being prepared now. That return is worth getting right for two reasons rather than one. Our Self Assessment preparation guide covers the mechanics, and the March tax checklist for sole traders and landlords covers the planning that should happen before the year even closes.
What the first conversation usually sounds like
A freelance client in Bristol described how the annual return felt before we took it on: “I had previously found it a bit complicated and daunting”, and said the difference was being walked through each section until it made sense.
The threshold test produces exactly the same reaction. It looks like it should be a single number and it turns out to involve six. Working through it with someone takes about ten minutes and removes the doubt for three years.
★★★★★ Laura H. in her own words, Google review, June 2022
Above or below
Know your figure before HMRC sends its letter
Your qualifying income, worked out the way HMRC works it out
We add the sources HMRC adds, leave out the ones it leaves out, and give you the wave and the date that follow from the answer.
Which wave you are in
The threshold falls each April, so more people join each year
Measured on gross income, not profit, and taken from the return you filed two years earlier.
The figure being measured is gross qualifying income from self employment and property, added together, before a single expense comes off. Employment, pensions, dividends and partnership shares sit outside it.
Your figure sitting near a line? We will check the exact number HMRC will use and give you the date that follows from it.
Check my MTD start datePart-year traders and new businesses
Someone who started trading part way through a tax year has not produced a full year of turnover, so HMRC scales the figure up. Its own example is direct: where you have been trading for six months in your first tax year, HMRC doubles the income to find your qualifying income.
That produces some uncomfortable outcomes. A consultant who started in October and billed £17,000 by 5 April has an annualised qualifying income of £34,000, which is a wave two position, even though the return shows £17,000. Property income has to be annualised the same way, and for property the calculation is yours to do rather than HMRC’s.
The other side of this is that a genuinely new business with no prior return has nothing for HMRC to measure. Scope arrives the year after the first full return, which gives a new sole trader a running start. It is not a permanent exemption and it is a good reason to set the bookkeeping up correctly from day one rather than retrofitting it later. That is the argument our sole trader accountants page makes at more length.
Joint property, and the couple who end up in different waves
Each owner counts their own proportionate share, and each owner is tested separately. This is the point that surprises people most.
Worked example two: one flat, two start dates
Partner A
Partner B
The same asset, the same rent, and two entirely different obligations. Note also that Partner A sits exactly on £30,000, which is not above £30,000. A £40 rent increase changes the answer, and that is precisely the kind of margin worth checking rather than assuming.
Unequal shares follow the same logic on the actual proportions. Where property is held in a partnership rather than jointly, the partnership rules take over and MTD does not currently apply. Landlords who are behind on declaring rental income at all should deal with that first, because quarterly data makes historic gaps considerably more visible. The Let Property Campaign route is far better entered voluntarily than under prompt.
From our casework
The most common threshold error we correct is not a maths error. It is a landlord netting the mortgage interest off the rent before looking at the number, which is exactly what the tax return trained them to do for years.
The second most common is a sole trader who genuinely is under the threshold this year, has been over it in the year HMRC is measuring, and has not connected the two.
What if you are just under, or your income moves
Sitting just under a threshold is a planning position, not a safe harbour. The line is fixed and your turnover is not, and the measurement happens on a year that has already finished by the time you find out.
Three things are worth doing in that position. Work out where the current year is heading, since that is the year that will be measured next. Get the records into compatible software now, because moving to digital records under no time pressure costs nothing and moving under time pressure costs a lot. And check whether an exemption applies, because several genuinely do, including for people who are digitally excluded.
Once you are inside the regime you generally remain there while the business continues, even where income later dips. HMRC reviews your position from your returns each year, and an obligation attached to a source of income ends when that source ends. The safe move is to tell your accountant when something changes rather than deciding on your own that the obligation has fallen away.
Where any of this is unclear for your own figures, the fastest route is a conversation. Total Books can check your MTD position and your start date in a single call, and the practice files for sole traders and landlords from offices in Cardiff, Newport and Bristol as well as UK wide.
Getting the structure right before the numbers
A client starting out in property put it this way: “Had a great session with Buhir going through all the options for running my new property development business.”
Structure decisions and threshold outcomes are linked. How property is held, in whose name and in what proportions changes both the tax and the MTD position, and it is far easier to decide at the start than to unpick afterwards.
★★★★★ James K. in his own words, Google review, February 2020
Threshold checks, sign-ups and quarterly filing handled from Cardiff, Newport and Bristol, and UK wide through the Virtual Finance Office.
Frequently asked questions
Is the MTD ITSA threshold based on turnover or profit?
Turnover. HMRC uses your total income from self-employment and property before any expenses are deducted. Profit does not appear in the test. A trade turning over £64,000 with £43,000 of profit is measured on £64,000.
Does my salary count towards the MTD threshold?
No. Employment income through PAYE is excluded entirely, as are pensions, dividends and your share of partnership profit. Only self-employment turnover and property income count.
I have two small businesses. Are they measured separately?
They are added together. Two trades turning over £18,000 and £16,000 give a qualifying income of £34,000, which is a wave two position from April 2027, even though neither trade reaches the threshold alone.
My rental income is £30,000 exactly. Am I in?
No, on those figures. The thresholds are exclusive, so you need to be above £30,000 rather than at it. That is a narrow margin and it is worth checking the exact gross figure rather than a rounded one, because a single rent increase can change the answer.
I only started trading in November. How is that measured?
HMRC annualises. Trading for six months means the income is doubled to produce the qualifying figure. Property income is annualised on the same principle, although you have to do that calculation yourself rather than relying on HMRC.
What if HMRC writes to me and I disagree with the figure?
The letter reflects what was on your return, and returns can contain one-off items that inflate turnover, such as a single land transaction confined to one year. Where the figure is wrong, the position is worth putting right rather than accepting. Bring the letter and the return to a call and we will look at both.
Does VAT count towards qualifying income?
It counts where you use the cash basis, are VAT registered and have chosen to include VAT in your turnover figure. Otherwise it does not. This is one of the details that moves a borderline case across the line, so it is worth confirming rather than assuming.
I am a landlord with foreign property. Does that count?
It counts where you are UK tax resident. Where you are not UK tax resident, foreign property income is excluded from the test. Residence is doing a lot of work in that sentence, and our foreign tax consultancy page is the place to start where your residence position is not obvious.
Next in this series
Once you know which wave you are in, these three cover what actually lands in your filing year.
Quarterly filing
What a quarterly update contains, when each one is due, and what happens if a figure changes later.
MTD quarterly updates for sole traders and landlordsWhat changes
How the new submission cycle differs from the single Self Assessment return you file today.
HMRC MTD income tax changes explainedBackground
The wider Making Tax Digital picture, from VAT onwards, for readers coming to it cold.
The complete guide to Making Tax DigitalGet your threshold answer in one call
Bring last year’s return and leave with your figure and your date
Total Books works out qualifying income the way HMRC does, confirms your start date and tells you what your first quarterly update needs to contain. Sole traders, landlords and self-employed professionals across Cardiff, Newport, Bristol and UK wide.
Written by Buhir Rafiq MAAT, founder of Total Books Accountants Ltd, HMRC Registered Tax Agent and Xero Certified Advisor. More about Buhir.
This guide is general information about UK tax rules current at 10 August 2026 and is not advice for your circumstances. Thresholds, exemptions and HMRC guidance on Making Tax Digital can change. Any client outcome described is a past result for that client and not a promise of a similar result. Total Books Accountants Ltd is an AAT licensed practice and an HMRC registered tax agent. Please take advice before acting.
