What happens when your income goes over the MTD threshold

Which year HMRC looks at

The threshold is not a forecast. HMRC takes the qualifying income from the tax return for a set tax year, and if that figure is over the threshold for that year, MTD ITSA applies from the 6 April after it.

So the first year you send quarterly updates is the year after the one that pushed you over. The three thresholds are set in law by SI 2026/336 regulation 27, in force 1 April 2026.

What counts towards the threshold

Qualifying income is your total income from self-employment and property before expenses, so it is turnover rather than profit. You add self-employment income and property income together before testing the threshold.

All UK properties are treated as one UK property business, and all foreign properties as one foreign property business, so rents are not tested one property at a time.

• Employment income through PAYE
• A partnership share held as an individual partner
• Dividends
• State and private pensions
• Qualifying care relief
• Basis period reform transition profits
• One-off transactions in UK land in a single tax year

Partnerships themselves are not in scope yet, and no start date has been published.

If you started trading partway through the year

The figure tested comes from the return for the year HMRC is looking at. If you only started trading partway through that year, the return covers only the part of the year you were trading, and that is the figure that gets tested.

You do not have to wait for a letter. You can sign up for the current tax year or the next one before you are required to, which is useful in a first year when you can see the total building towards the line.

You still send the Self Assessment tax return for the tax year before you start using MTD ITSA.

Signing up once you are over

Sign-up is per income source, so you sign up each one if you have more than one. You must be registered for Self Assessment and to have sent a tax return in the last 2 years.

An identification check may be needed, and the confirmation arrives in HMRC online services or by post.

Sign-up does not ask about other income sources or gains. Those are added in compatible software before the tax return is submitted.

From September 2026 HMRC signs up anyone who needs it for 2026-27 and has not signed themselves up. It happens in stages, using only the information HMRC already holds.

If your income drops back down

Qualifying income of 20,000 pounds or less is an automatic permanent exemption. The thresholds also step down across the three test years, so the figure that mattered in one year is not the figure that matters in the next.

If you become exempt in 2026-27 you return to the current Self Assessment penalties for that year. From April 2027 the new penalties apply to everyone who submits a personal Self Assessment return.

What the first year in MTD looks like

Once you are in, you send four quarterly updates a year, built from digital records. Each one is a set of totals by income and expense category, cumulative from 6 April, and is a summary rather than a tax return.

You must still send an update for a period with no income and no expenses.

2026-27 has no penalty points for missing a quarterly update deadline. Points still apply to the tax return deadline, and digital records and updates are still required.

The tax return is submitted after the tax year, and the tax is paid by 31 January.

What the software has to do

Compatible software must create and store digital records, work with your chosen accounting period, and send the quarterly updates. An all-in-one product also submits the tax return.

HMRC's find software service lists products that meet the requirements for the service. It does not rank them and does not carry prices.

You authorise the software so it connects to HMRC, and repeat that every 18 months without repeating the identity check.