What is the turnover threshold for Making Tax Digital for Income Tax?

Understanding the question: what does “turnover threshold” mean for MTD for Income Tax?

When people ask, “What is the turnover threshold for Making Tax Digital for Income Tax?”, they are usually trying to work out one thing: at what level of income do I have to start following the Making Tax Digital rules for Income Tax? The phrase “turnover threshold” is commonly used in VAT, where registration is triggered by taxable turnover crossing a specific figure. For Income Tax, however, the language is slightly different, and that difference matters because it affects who is required to comply and when.

In the context of Making Tax Digital for Income Tax (often shortened to “MTD for Income Tax” or “MTD IT”), the concept that acts like a “threshold” is generally based on your gross income from self-employment and/or property. In other words, it is not a profit threshold and it is not usually described as “turnover” in the strict VAT sense. It is closer to “qualifying income” before expenses are deducted. That is why two people with very different profits can still have the same compliance position if their gross income is above the relevant level.

So, if you are searching for a “turnover threshold,” the most practical way to think about it is: what level of gross receipts (from relevant sources) makes you fall within the scope of MTD for Income Tax? Once you understand what counts, how it is measured, and how multiple income streams interact, the threshold question becomes much easier to answer and apply to real life.

What Making Tax Digital for Income Tax is trying to change

Before diving into the threshold itself, it helps to understand why the threshold exists at all. Making Tax Digital for Income Tax is designed to move certain taxpayers away from an annual, once-a-year reporting rhythm and toward a more digital, more frequent reporting cycle. The goal is that records are kept digitally, and information is sent to HMRC through compatible software rather than through manual processes and spreadsheets that are later typed into an online form.

That doesn’t necessarily mean you pay tax four times a year. A common misconception is that quarterly submissions automatically trigger quarterly tax payments. The reporting schedule and the payment schedule are not the same thing. Instead, the quarterly updates are intended to provide HMRC with a more up-to-date picture of income and expenses throughout the year, and to help taxpayers understand their likely tax position earlier.

Because this is a major operational shift, especially for small businesses and landlords, the rules have been phased in with thresholds. The threshold determines who is required to adopt the new system first, with additional groups potentially joining later depending on policy and timelines.

The practical “turnover threshold” concept: gross income, not profit

For Income Tax, the key idea is gross income from certain sources, not profit. “Gross income” means the total amount you receive before subtracting allowable expenses. If you are self-employed, it is your business takings. If you are a landlord, it is your rental income. If you have both, both streams may be considered together for threshold purposes, depending on the rules in force at the relevant time.

This distinction is important because it can produce outcomes that surprise people. Imagine a self-employed person with high expenses—perhaps a subcontractor with significant materials costs—whose profit is relatively modest. They may assume that because they “don’t make much profit,” the digital reporting rules won’t apply. But if their gross receipts are high enough, they can still be within scope. On the other hand, someone with relatively low gross receipts but excellent margins might have higher profits while remaining outside the threshold, at least initially.

That is why people often use the word “turnover” here. For a sole trader, gross receipts and turnover are often used interchangeably in everyday conversation. The key takeaway is that the threshold test is usually based on income before expenses, not the profit after expenses.

Which income streams are relevant when considering the threshold?

MTD for Income Tax focuses primarily on individuals who receive income from self-employment and/or property. That usually means:

1) Sole traders (including many freelancers and contractors) with trading income.

2) Landlords with property income (for example, residential letting income).

Some people have more complex situations, such as multiple trades, multiple rental properties, or a combination of trading and property income. The “threshold” question then becomes: do you look at each stream separately, or do you add them together? In many practical discussions, the combined level of relevant gross income is what matters, because the intention is to capture individuals with total trading/property income above a certain level.

It is equally important to note what is typically not the focus of MTD for Income Tax at the initial stage. Employment income taxed through PAYE, pension income, and certain investment income are generally not what triggers the requirement in the same way that self-employment and property income do. That doesn’t mean they are irrelevant to your overall tax calculation—only that they are not usually the gateway for whether you must adopt MTD for Income Tax reporting.

How the threshold is measured: the tax year and the “look-back” idea

Another point that often causes confusion is when the threshold is measured. In VAT, you might look at turnover on a rolling 12-month basis. For MTD for Income Tax, the approach is typically anchored to tax years and to information that HMRC already has from prior returns.

In practice, there is often a “look-back” method where HMRC assesses whether your relevant gross income exceeded the threshold based on a previously filed tax return. This makes administrative sense: HMRC can identify who is in scope using the data it already holds, rather than asking everyone to self-assess in real time. For taxpayers, it means the trigger is usually linked to what you reported for a past tax year, not necessarily what you expect to earn in the coming year.

This can create timing effects. For example, you might have a strong year that pushes you over the threshold, and then a weaker year afterward. Depending on the rules, you could still be required to join because the look-back year exceeded the threshold, even if the current year is lower. Alternatively, if you are growing rapidly and have not yet crossed the threshold on the most recently filed return, you might not be mandated immediately, even if you expect to cross it soon. The exact details depend on the implementation rules, but the principle remains: the threshold test is usually based on filed figures and tax-year reporting, not a rolling monthly calculation like VAT.

Why “turnover threshold” can be misleading compared with VAT thresholds

It is tempting to map the VAT concept directly onto MTD for Income Tax, but there are important differences:

First, VAT registration is based on taxable turnover and is often measured over a rolling 12 months. MTD for Income Tax scope is based on a type of gross income and often tied to tax-year data.

Second, VAT threshold rules sit within a system where VAT is collected on behalf of the government, and registration brings with it responsibilities like charging VAT, issuing VAT invoices in certain contexts, and submitting VAT returns. MTD for Income Tax is about how you keep records and report, rather than changing the nature of the tax itself.

Third, for VAT the threshold is often seen as a line you can “plan around” by slowing work. For Income Tax reporting, the threshold is often based on historical figures. That makes “planning around it” less straightforward, and in some cases not advisable, because deliberately restricting business growth can cost more than it saves in administration.

What exactly does the threshold trigger you to do?

Once you are within scope, the key operational changes generally include:

Keeping digital records of business and/or property income and expenses using compatible software.

Sending quarterly updates to HMRC for each relevant business or property income stream, giving summary totals.

Making an end-of-period statement (or finalisation step) after the tax year to confirm the final figures, make any accounting adjustments, and claim allowances and reliefs.

Submitting final declarations that bring all your sources of income together for the year, similar in intent to the existing annual tax return process but delivered through a digital workflow.

The threshold therefore isn’t just about “do I have to do something extra?” It is about whether your entire record-keeping and submission workflow needs to be structured around compatible software and periodic submissions.

Common scenarios: how the threshold plays out in real life

To make the “turnover threshold” concept concrete, it helps to consider a few scenarios. These are illustrative examples, not a substitute for checking your specific position.

Scenario 1: A sole trader with one business. If their annual gross receipts exceed the relevant threshold, they are likely to be within scope. If their receipts are below, they may not be required yet. The key is gross receipts, not profit.

Scenario 2: A landlord with property income. If their rental income exceeds the threshold, they may be within scope even if expenses, mortgage interest restrictions, or void periods mean the net profit is small. The figure to focus on is the gross rent received.

Scenario 3: A person with both a small trade and small rental income. Individually, each stream might look modest, but together they might exceed the threshold depending on how “qualifying income” is calculated. This is a classic area where people can misjudge their position by looking at each stream separately.

Scenario 4: A person with multiple trades. Some individuals run more than one self-employed activity (for example, a consulting business and a separate online shop). The threshold question then includes whether the qualifying income is aggregated across trades. Operationally, MTD processes tend to treat each business separately for quarterly updates while still combining everything at year-end for the final declaration, so aggregation questions matter.

If you are near the threshold: why accuracy matters

If your gross income is hovering around the threshold, small differences in how you measure and categorise income can change whether you are required to join. For example, the timing of invoices and payments can affect when income is recognised, depending on your accounting basis. Many very small businesses use a cash basis, where income is recorded when it is received. Others use traditional accrual accounting, where income is recognised when earned (invoiced), even if not yet paid.

If you are close to the threshold, you should also be careful about one-off events that can inflate gross receipts temporarily, such as selling an asset as part of trading activity, receiving a large backdated payment, or earning exceptional income in a single year due to a contract spike.

Even if the threshold uses figures from a prior return, the way that return was prepared matters. Getting the classification right—trade versus other income, property income correctly recorded, and the accounting basis applied consistently—reduces the risk of surprises when determining scope.

Does incorporation change the threshold question?

Yes, in many practical senses. MTD for Income Tax generally relates to individuals subject to Income Tax on their self-employment and property income. A limited company is subject to Corporation Tax, not Income Tax on trading profits (although the owner may still have Income Tax on salary and dividends). If you run your business through a limited company, the “turnover threshold” for MTD for Income Tax is typically not the same trigger for the company’s reporting obligations.

However, incorporation is a major decision with tax, legal, and administrative consequences. It should not be treated as a simple way to avoid digital reporting. Incorporation can increase complexity in other areas—payroll, Companies House filings, dividend planning, and accounting costs—so it should only be done if it makes sense for the business overall.

What if you’re below the threshold: can you join voluntarily?

In many compliance systems, there is often the possibility of voluntary adoption, and MTD initiatives have historically included voluntary participation for those who want to get comfortable before they are mandated. If you are below the threshold, you may still prefer to adopt compatible software and a digital bookkeeping routine because it can bring real benefits: fewer errors, better cash flow visibility, simpler collaboration with an accountant, and less stress at year-end.

Voluntary adoption can also be useful if you expect growth. Rather than switching processes abruptly at the point you become mandated, you can transition earlier, refine your workflow, and develop a habit of keeping records up to date.

The key is to adopt in a way that fits your business. For example, many small traders can keep things simple by using bank feeds, basic categorisation of expenses, and straightforward invoicing tools. Landlords might focus on tracking rent, letting agent fees, repairs, insurance, and mileage or travel costs where relevant.

How the threshold interacts with the “start date” of MTD for Income Tax

When people ask about the turnover threshold, they often also mean “from when does this apply to me?” The threshold and the start date are tightly connected. A threshold is only meaningful when paired with an implementation date: the date from which those above the threshold must follow the MTD requirements.

In phased rollouts, the highest-income group typically enters first, followed by lower-income groups later. That means there can be multiple thresholds and multiple start dates. For example, one threshold might apply to the first wave, and another threshold to the second wave. Understanding which band you fall into requires looking at your qualifying gross income and the corresponding timetable for your group.

From a practical standpoint, you should treat the threshold as a trigger for preparation, not just compliance. If you are likely to be within scope, it is wise to start planning: choosing software, learning the basics, deciding how to capture receipts, and setting a routine for reviewing transactions.

Record-keeping: what “digital” actually means in practice

Digital record-keeping does not necessarily mean you need a complex accounting system. In practical terms, it means you need to maintain your records in a digital format and submit required information through compatible software. For many sole traders, this can look like:

Using an app or cloud software to record sales and expenses.

Connecting your business bank account so transactions flow in automatically.

Categorising transactions regularly (weekly or monthly).

Uploading photos of receipts or emailing invoices into the system.

For landlords, it can mean tracking rents received, recording expenses by category, and keeping notes on the nature of costs so they are correctly treated for tax purposes.

What tends to trip people up is not the technology itself but the discipline of staying current. Quarterly updates are easier when the bookkeeping is maintained continuously rather than reconstructed from a pile of receipts right before a deadline.

Quarterly updates: what they are and what they are not

The quarterly updates under MTD for Income Tax are often misunderstood. They are typically summaries of income and expenses for the period, sent to HMRC. They are not necessarily a final tax calculation. They may not include year-end accounting adjustments such as accruals, prepayments, capital allowances, or more complex reliefs. Those elements are often handled at the end-of-period stage.

This matters because the quarterly figures may not perfectly match the final taxable profit for the year. The purpose is to provide a running picture rather than a fully finalised computation each quarter. That said, the better the underlying records, the more useful the quarterly picture will be for budgeting and forecasting.

End-of-year finalisation: why the annual step still matters

Even with quarterly updates, there is typically still an annual finalisation process. This is where you confirm the final numbers for each business or property activity and make tax adjustments that are not captured in basic day-to-day bookkeeping. For example, you might:

Claim capital allowances on equipment.

Adjust for private use proportions (for example, if a phone or vehicle has both business and personal use).

Apply accounting adjustments where income and expenses need to be matched to the correct period.

Declare other income sources and confirm reliefs or allowances.

This is also why the threshold question is not just about the quarterly submissions. It is about moving to a digital, structured approach across the whole year, culminating in a final declaration that produces the actual tax position.

How to estimate your position against the threshold

If you want to know whether you are above or below the threshold in practical terms, you can work through a simple approach:

Step 1: Identify your relevant income streams. List your self-employment income (gross takings) and your property income (gross rents). Keep them separate initially.

Step 2: Confirm the basis you use (cash basis or accruals) because it affects the timing of income recognition. Your tax return and accounts should indicate this.

Step 3: Calculate the gross totals for the tax year. For a trade, this is typically total sales/fees received (or invoiced, depending on basis). For property, it is total rents received (or due, depending on basis).

Step 4: Consider whether your total qualifying income is aggregated across streams for the threshold test. If the rules for your start date require aggregation, add the totals together to compare to the relevant figure.

Step 5: Look at the tax year HMRC uses to determine scope. In many cases it will be a prior filed return. That means you should use the gross income figures from that return when deciding whether you fall into the mandated population.

This approach gives you a grounded estimate and helps you avoid the most common mistake: comparing your profit to the threshold instead of your gross income.

What if your income fluctuates year to year?

Fluctuating income is normal for many self-employed people and landlords. Seasonal businesses, project-based contractors, and landlords with occasional voids can see big swings. The threshold question in a fluctuating world often becomes: do you move in and out of scope each year?

In many regulatory systems, moving in and out every year would be administratively messy, so there may be rules that keep you in scope once you enter, at least for a period, or that use prior-year information in a consistent way. This stability helps both taxpayers and HMRC. It also means that if you cross the threshold in one year, you should be prepared for the possibility that you may remain within the MTD reporting framework even if income dips later.

If you anticipate volatility, it is especially useful to adopt strong bookkeeping habits early. When income falls, you have less time and energy to deal with administrative friction, so a smoother, already-established process can be a real advantage.

How to prepare if you expect to be above the threshold

If you believe you are above the relevant threshold (or likely to be brought into scope soon), preparation usually comes down to four practical areas:

1) Choose software that fits your needs. Some people want simple income-and-expense tracking, while others need invoicing, project tracking, VAT features, or landlord-specific tools. The best choice is often the one you will actually use consistently.

2) Create a routine. Set a weekly or monthly time slot to reconcile transactions, categorise expenses, and upload receipts. This reduces stress before quarterly deadlines.

3) Separate business and personal finances where possible. A dedicated business bank account is not always legally required for sole traders, but it can drastically simplify bookkeeping. For landlords, a dedicated account can help track rent and property costs clearly.

4) Work with an accountant or bookkeeper if needed. Even if you do most of the data entry yourself, professional review can ensure categories are correct and that you are not missing allowable deductions or making errors that create issues later.

Key misconceptions about the threshold

Misconception 1: “It’s a profit threshold.” For MTD for Income Tax, the threshold is generally about gross income from relevant sources, not profit. High expenses do not necessarily keep you out of scope.

Misconception 2: “Employment income counts toward the turnover threshold.” Employment income affects your total tax but usually is not the trigger for MTD for Income Tax in the same way that trade and property income are.

Misconception 3: “Quarterly reporting means quarterly payments.” Reporting frequency does not automatically equal payment frequency. The system may give you a more frequent view of liability, but payment rules are a separate question.

Misconception 4: “I can ignore it until the first deadline.” The first deadline arrives faster than many people expect when you factor in software setup, learning time, and building a record-keeping routine. Early preparation reduces last-minute disruption.

Answering the question directly: what to focus on when you hear “turnover threshold”

So, what is the turnover threshold for Making Tax Digital for Income Tax? In practical terms, it is the level of gross qualifying income from self-employment and/or property that determines whether you must comply with MTD for Income Tax from the applicable start date for your group. The figure you compare against the threshold is generally your gross income (turnover-like receipts), not your profit.

The most reliable way to use this understanding is to stop thinking in VAT terms and start thinking in Income Tax reporting terms. Identify your qualifying income streams, total the gross amounts for the relevant tax year, and compare them to the threshold that applies to the rollout stage you fall into. If you are above it, you should plan for digital record-keeping and quarterly updates through compatible software, followed by annual finalisation.

Final thoughts: treat the threshold as a planning tool, not just a compliance line

The turnover threshold question is often asked with a sense of anxiety: “Do I have to do this?” But the most productive framing is: “If I am likely to be in scope, how can I make this easier on myself?” Digital record-keeping can feel like a burden if it is forced on you suddenly. Yet many small businesses and landlords find that once a routine is established, it can actually reduce the year-end scramble, improve visibility over cash flow, and make it easier to stay on top of obligations.

If you are clearly above the threshold, the best time to get ready is well before you are required to submit your first quarterly update. If you are close to the threshold, the best time to clarify your numbers is now, while you still have room to adjust your processes calmly. And if you are below the threshold, you still may benefit from adopting digital tools gradually, especially if you expect your income to grow or if you want better financial control.

Ultimately, the “turnover threshold” for MTD for Income Tax is less about a single number and more about what that number represents: the point at which HMRC expects you to run your Income Tax reporting through a digital workflow, backed by digital records, on a more frequent reporting schedule. Once you view it that way, the threshold becomes a practical checkpoint—one you can measure against, plan around, and meet with confidence rather than surprise.