Making Tax Digital: What the £50,000 and £30,000 Turnover Rules Actually Mean for You

Tax Queen

Tax Expert @ Pie

3 min read

MTD for Income Tax: Are You Affected?

Making Tax Digital (MTD) for Income Tax is now live for sole traders and landlords with qualifying income above £50,000, with the threshold dropping to £30,000 from 6 April 2027 and £20,000 from 6 April 2028.

If you're self-employed or receive property income, understanding how the qualifying income rules work is important. The amount HMRC uses to decide whether you're affected is based on your total income from self-employment and property before expenses, rather than the profit you have left after costs.

What is Making Tax Digital?

Making Tax Digital is HMRC's programme for moving tax administration towards digital record-keeping and reporting. MTD for Income Tax is being introduced in stages for sole traders and landlords who are registered for Self Assessment and have qualifying income above the relevant threshold.

From 6 April 2026, MTD for Income Tax applies to those whose qualifying income was more than £50,000 for the relevant previous tax year.
From 6 April 2027, the threshold falls to £30,000.
From 6 April 2028, the threshold falls to £20,000.

Qualifying income means your total income from self-employment and property before expenses. If you have more than one source of self-employment or property income, HMRC can combine those amounts when working out whether you are above the threshold.

The rules do not mean that your annual Self Assessment tax return disappears. Instead, MTD adds digital record-keeping and quarterly updates to the process, with your final tax return still submitted through compatible software.

If you want the full breakdown of who's affected and when, our guide on Making Tax Digital for sole traders and self-employed covers it in detail.

The Catch: It's Turnover, Not Profit

This is the part that can catch people out. The MTD threshold is based on qualifying income before expenses, also known as turnover, rather than your taxable profit.

Say you're a self-employed builder with turnover of £60,000, but you spend £25,000 on materials and tools. Your taxable profit may be around £35,000 before other relevant adjustments, but HMRC looks at the £60,000 qualifying income figure when deciding whether you are within the MTD rules.

The same principle applies to property income. Rental income can count towards your qualifying income before relevant expenses and deductions are taken into account.

That means having high business costs does not necessarily keep you outside MTD. Your profit might be much lower than your turnover, but the turnover figure is what matters for the initial MTD threshold test.

Self-employed professional reviewing quarterly income and expenses for Making Tax Digital compliance

Multiple Income Sources Get Added Together

If you have more than one source of self-employment or property income, HMRC can combine them when checking whether you've crossed the threshold.

For example, a freelancer with £45,000 of self-employment income might assume they're safely below the £50,000 threshold. But if they also receive £6,000 of qualifying property income during the year, their combined qualifying income would be £51,000.

That could mean they fall within MTD sooner than expected.

Not every type of income counts towards the qualifying income calculation. For example, employment income, dividends, State Pension income and private pension income are not included in the qualifying income figure used for MTD.

If you have several income sources, it's worth checking how they fit together rather than looking at your self-employment or property income in isolation. Curious how Pie Tax handles multiple income streams in one place? See how it works

What You'll Need to Do Under MTD

Once you're in scope, MTD changes how you manage your Self Assessment information throughout the year. It does not replace the annual Self Assessment tax return.

You'll need to:

Digital record-keeping, using MTD-compatible software to keep digital records of your self-employment and property income and expenses.
Quarterly updates, sending summaries of your digital records to HMRC throughout the tax year.
An annual tax return, where you finalise your figures, include other relevant income and reliefs, and submit your Self Assessment tax return through your compatible software.

For the 2026/27 tax year, the standard quarterly update deadlines are 7 August, 7 November, 7 February and 7 May. HMRC has confirmed that there are no penalty points for late quarterly updates during 2026/27, although you still need to submit them before you can file your tax return.

If you're unsure how the quarterly side works in practice, our guide to MTD quarterly update deadlines walks through every date, what to include, and what happens if you miss one.

And if you're already using the app, here's exactly how to file your MTD quarterly update in the Pie Tax app

Self-employed professional reviewing quarterly income and expenses for Making Tax Digital compliance

The New Penalty System

Alongside MTD, HMRC has introduced a new points-based penalty regime for late submissions.

For the 2026/27 tax year, there are no penalty points for late quarterly updates. However, penalties can still apply to late tax returns and late payment of tax.

From tax years after 2026/27, missing a quarterly update or tax return deadline can result in a penalty point. Once you reach 4 points, a £200 penalty applies, with further £200 penalties for subsequent missed deadlines.

Penalty points are subject to HMRC's rules on when they can be removed, including requirements around submitting outstanding returns and updates and maintaining compliance.

It's therefore worth getting into the habit of keeping your digital records up to date and checking your reporting deadlines. If you want to understand what's actually at stake financially, the true cost of late tax filing breaks down the fines and interest involved.

The New Penalty System

Alongside MTD, HMRC has introduced a new points-based penalty regime for late submissions.

For the 2026/27 tax year, there are no penalty points for late quarterly updates. However, penalties can still apply to late tax returns and late payment of tax.

Penalty points are subject to HMRC's rules on when they can be removed, including requirements around submitting outstanding returns and updates and maintaining compliance.

Take the Next Step

The key point is that your profit does not determine whether you fall within the MTD threshold. HMRC looks at qualifying income from self-employment and property before expenses.

With the threshold moving from £50,000 to £30,000 from 6 April 2027, and then to £20,000 from 6 April 2028, it's worth checking your qualifying income now and understanding when the rules could apply to you.

If you're a landlord specifically, it's also worth reading how MTD applies to property income and self-assessment for landlords, since property income is included in the qualifying income calculation.

Get started with Pie Tax for free or see how it works for yourself.