MTD for income tax is now live for the first mandated group of sole traders and landlords. Since 6 April 2026, those with more than £50,000 of qualifying income have had to keep digital records and send quarterly updates to HMRC. The next phase is already approaching. From 6 April 2027, the threshold falls to more than £30,000. For many consultants, professional advisers, owner-managed businesses and landlords, that is what the next threshold drop means in practice.
HMRC statistics show there were 7.0 million Income Tax Self Assessment individuals with landlord or sole trader businesses in 2023/24. Around 2.9 million, or 42%, had qualifying income above £20,000 and are within the wider MTD timetable. This is not a niche reform. It reaches people with modest property portfolios, established side businesses and self-employed income that may fluctuate.
The main risk is assuming the rules only apply to high-profit businesses. They do not. The test is based on gross qualifying income. The practical question is not just “how much tax will I pay?” but “how are my records kept, and when will HMRC expect digital updates?”
How the threshold drop works
HMRC is phasing in MTD for income tax by reference to qualifying income. HMRC guidance confirms the timetable:
- Over £50,000: You need to use MTD from 6 April 2026, based on qualifying income in the 2024/25 tax year.
- Over £30,000: You need to use MTD from 6 April 2027, based on qualifying income in the 2025/26 tax year.
- Over £20,000: You need to use MTD from 6 April 2028, based on qualifying income in the 2026/27 tax year.
Qualifying income means income before expenses, also called turnover, from self-employment and property. A sole trader with £34,000 of fees and £12,000 of allowable expenses could still be in scope from April 2027 because HMRC looks at the £34,000 income figure, not the £22,000 profit.
Income sources also need to be combined. A consultant with £22,000 of fees and £11,000 of rental income would have £33,000 of qualifying income. That is what the next threshold drop means for many people with mixed income.
What changes once you are in MTD
MTD for income tax does not remove the annual tax return. It changes the work that happens during the year.
Once you are within MTD, you need to keep digital records and use compatible software to send quarterly updates to HMRC. You then finalise the year through the MTD software, making accounting and tax adjustments before the normal 31 January filing deadline.
HMRC has confirmed that those who joined in April 2026 will still file their 2025/26 Self Assessment return in the usual way by 31 January 2027. Their first MTD tax return, covering 2026/27, will be due by 31 January 2028 (HMRC, 2026).
Records need to be maintained during the year, not rebuilt after it.
Preparation usually covers:
- Software: You need a system that can keep digital records and submit MTD updates, either directly or through bridging software.
- Bank feeds: Connecting business or property accounts can reduce manual entry and improve record quality.
- Expense categories: Costs should be posted consistently, so quarterly updates are useful and year-end corrections are reduced.
- Review points: Quarterly updates should support profit, tax and cashflow reviews, not just compliance.
Our accounts and bookkeeping team can help assess whether your current system is ready, whether it needs adjustment.
Why the £30,000 phase may catch more people than expected
The £30,000 threshold affects a broader group than the first £50,000 phase. HMRC’s business population statistics show 1,077,000 individuals had qualifying income between £30,000.01 and £50,000 in 2023/24 and are expected to join from April 2027. A further 975,000 were between £20,000.01 and £30,000 and are expected to join from April 2028 (HMRC, 2025).
The common misunderstanding is to focus on taxable profit. A landlord with £32,000 of rental income with mortgage interest, repairs and agent fees may have a much lower taxable profit, but the gross rents still drive the MTD test.
HMRC will review your Self Assessment return and write to you if it believes you need to use MTD. However, HMRC’s guidance says you are still responsible for checking whether and when you need to sign up, even if you do not receive a letter.
That makes the 2025/26 return important. If qualifying income is close to £30,000, you should plan on the basis that MTD may apply from April 2027 unless there is a clear reason it will not.
What to do before the next phase
Start by identifying every source of self-employment and property income. Separate these figures from employment income, dividends, pension income and partnership profit, which have their own rules. Then check whether special points apply, such as jointly owned property, ceased trades, non-UK residence, care relief or unusual income.
Next, look at your records. If you already use software, check whether it is compatible for MTD income tax, not only MTD VAT. If you use spreadsheets, you may need bridging software and a process that preserves digital links. If your records are mainly paper-based, moving early gives you time to test a system.
There can also be a management benefit. Quarterly records can give a clearer view of profit, tax reserves and cashflow. For a consultant, that may mean spotting a weak quarter earlier. For a landlord, it could mean tracking repairs, finance costs and rental yields more closely.
Our self assessment service can help you check your income position, confirm your likely start date and align your records with your annual tax return.
What the next threshold drop means for your planning
What the next threshold drop means is that MTD should now sit inside routine tax planning for sole traders and landlords, not outside it as a separate technology project. The people most exposed are those who leave records until after the year end, use mixed personal and business accounts, or assume taxable profit is the figure that counts.
For the 2026/27 tax year, clients close to the £30,000 or £20,000 thresholds should keep monthly records, review income before the tax year ends and decide who will manage software authorisation and quarterly submissions. Those already over £50,000 should be using the first MTD year to refine processes before the penalty regime has full effect.
The government has announced a first-year easement for those joining in April 2026, so they will not receive penalty points for late quarterly updates during the first 12 months. This should not be treated as a reason to delay. It is a transition period, not a removal of the obligation.
If you are unsure what the next threshold drop means for your position, we can review your latest Self Assessment figures, check your qualifying income and advise on the next steps. Speak to our taxation team about MTD for income tax planning before your next filing cycle begins.