Making Tax Digital for Income Tax (MTD for IT) is now live. It came into effect on Monday, 6 April 2026, and applies to landlords and sole traders whose gross qualifying income from property and/or self-employment exceeds £50,000.
But if you’re an individual who has been pulled into the scope of this new tax regime, you may now be asking, “What happens if my income falls below the mandated MTD thresholds? Can I exit MTD?”
Well, you may want to know that HMRC has clarified that an income drop doesn’t automatically allow you to exit MTD. So, what does? This article gives you the answer.
But First, What is Qualifying Income?
Qualifying income for MTD includes all sources of income that bring an individual into the regime. Specifically, this covers self-employment income, which is any income you earn from a sole trader business you operate, and property income, which is the rental income from residential or commercial properties you own personally.
HMRC uses income from the previous tax year to determine whether you are required to comply with MTD. For example, MTD obligations from 6 April 2026 are based on your income in the 2024/25 tax year. Income in future years is not considered when establishing the initial MTD scope.
Who Must Comply With MTD?
You must comply with MTD for IT if your combined property and self‑employment income in a given tax year exceeds the relevant threshold set by HMRC. For the first phase, which began on 6 April 2026, you must comply if your total qualifying income from property and self‑employment exceeded £50,000 in the 2024/25 tax year.
Furthermore, future threshold changes mean more landlords and sole traders will be brought into MTD:
- From 6 April 2027, the qualifying income threshold reduces to £30,000
- From 6 April 2028, the qualifying income threshold reduces to £20,000
Additionally, you may also receive a letter from HMRC informing you of your MTD status and guiding you on the steps you need to take. This letter is helpful and informative, but it is not what creates your obligation. You must comply with MTD if your income exceeds the aforementioned thresholds, regardless of whether you receive a letter from HMRC or not.
How to Exit MTD?
Route 1: Cessation of Qualifying Income
This route applies if you completely stop all income that falls under MTD. In other words, if your property and/or self-employment activities end entirely, you can choose to exit the regime immediately. This could include:
- Selling all your rental property and have no remaining personal rental income. Any remaining rental income, even if small, means you stay in MTD
- Transferring your entire property portfolio into a limited company so future income is no longer personal
- Permanently ending all self-employment activities. HMRC requires confirmation before you can formally exit
Route 2: Three-Year Low-Income Exemption
If your qualifying income drops below the threshold but does not completely stop, you cannot exit immediately. However, HMRC allows you to leave MTD through a structured approach described below:
- Maintain combined qualifying income below the relevant threshold for three consecutive tax years
- After three years of low income, you may choose to opt out of MTD
- Once approved, HMRC will remove your MTD obligations
Unlike the cessation route, you remain in MTD while income is low and only exit after demonstrating sustained low income over time.
Steps to Take to Exit MTD
Cessation Route | Three-Year Low-Income Route |
|---|---|
1. Notify HMRC as soon as all qualifying income has stopped. | 1. Track qualifying income carefully each year. |
2. Confirm via MTD registration portal, phone or webchat. | 2. After three consecutive years below the threshold(s), notify HMRC to request opt-out. |
3. Ensure your Self Assessment Tax Return reflects cessation accurately. | 3. Maintain clear records to demonstrate that income remained below threshold(s) during the period |
4. HMRC will then remove your from MTD. | Cell |
Conclusion
Being required to use Making Tax Digital isn’t automatically reversed just because your income falls below the threshold. Landlords and sole traders can only exit immediately if all sources of qualifying income have truly stopped, such as when rental properties are sold or a business is permanently closed.
For those who continue to earn but remain under the threshold, HMRC’s three-year low-income exemption offers a way out, allowing you to leave MTD once your income stays consistently low over three consecutive tax years. To navigate either route successfully, it is crucial to plan ahead, keep accurate records, and communicate with HMRC early to ensure compliance and minimise reporting obligations.
FAQs
No. A drop in income alone does not automatically remove you from Making Tax Digital. You must either cease all qualifying income or meet the three-year low-income exemption to exit the regime.
Qualifying income includes self-employment income and property rental income you receive personally.
If your combined qualifying income stays below the MTD threshold(s) for three consecutive tax years, you may choose to opt out of MTD. During this period, you remain in MTD and must continue reporting digitally.
No. Immediate exit is only possible when all qualifying income has ceased. Keeping even a single income-generating property means you remain in MTD.
Yes. Whether you are exiting through cessation or the three-year low-income route, you should notify HMRC and provide any requested documentation to formally remove your obligations.
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