How the threshold is tested
The requirement to use MTD for Income Tax is based on your qualifying income from the previous tax year. This figure is taken from the tax return you submitted for that year.
Qualifying income is the total income from self-employment and property before you deduct any expenses. It is often called turnover.
If you have both self-employment and property income, you add them together to test the threshold.
Because the test looks back at a completed tax year, a drop in your current year's income does not change your status for the current MTD year.
The permanent exemption below 20,000 pounds
There is one situation where a drop in income stops the requirement immediately. If your qualifying income is 20,000 pounds or less, you are automatically and permanently exempt from MTD for Income Tax.
This exemption applies regardless of which tax year the income figure comes from. Once your qualifying income is at or below this floor, you do not need to use MTD for future years unless your income rises above the threshold again.
If you are exempt, you continue to submit your Self Assessment tax return as usual.
What counts as qualifying income
Only certain types of income count towards the MTD threshold. You must add together income from self-employment and property businesses.
All UK properties are treated as one UK property business. All foreign properties are treated as one foreign property business.
Some income sources are not counted towards the threshold. These include employment income through PAYE, dividends, State and private pensions, and qualifying care relief.
- Self-employment income (before expenses)
- UK property income (before expenses)
- Foreign property income (before expenses)
If your business has ceased
If all your self-employment and property income ceased before 6 April 2026, you do not need to use MTD for Income Tax. You must still file your 2025-26 tax return.
If your income ceased on or after 6 April 2026, you still need to use MTD for Income Tax. You must send a quarterly update covering the period up to the date the business stopped.
Managing records during a quiet period
Even if your income is low, you must still keep digital records and send quarterly updates if you are in scope. You must send an update for a period with no income and no expenses.
Compatible software helps you maintain these records and send updates on time, even when there is little activity. This ensures you stay compliant and avoid penalty points.