Your income dropped. Can you leave Making Tax Digital?
Does MTD apply to you yet?Eventually, but not quickly: the door out of Making Tax Digital is much slower than the door in. Under the 2026 Regulations, a drop in income only releases you after your qualifying income has stayed at or below the threshold for three consecutive tax years while you were in MTD, and the earliest tax year anyone can be released is 2029-30. One quiet year changes nothing.
The rule, from the legislation itself
The law here is The Income Tax (Digital Obligations) Regulations 2026 (S.I. 2026/336). Regulation 24 applies the exemption to you for a tax year, which it calls year Y, only "after the tax year 2028-29", and only if two things are true of the three years before it:
"a digital obligation applied to the person in relation to the tax year Y-3, the tax year Y-2 and the tax year Y-1"
"the amount of the person's qualifying income for each of those three tax years was not more than the qualifying amount for that tax year"
In plain English: you were in MTD for three straight years, and in each of those years your qualifying income stayed at or below the threshold that applied. Only then does the exemption reach you, and never for a year before 2029-30. So someone mandated this April who immediately drops below the threshold still runs 2026-27, 2027-28 and 2028-29 inside MTD, with 2029-30 the first possible year out.
Why one bad year changes nothing
Two reasons. First, the test is three consecutive years, not one. Second, it's measured on qualifying income, which is your gross income from self-employment and property, before expenses. A year of thin profit on normal turnover doesn't move the number at all. Rental income counts towards it too, added to your trade turnover.
The threshold is falling while you wait
Each of the three years is tested against the amount set for that year, and those amounts step down as MTD phases in: over £50,000 brings people in from April 2026, over £30,000 from April 2027, and over £20,000 from April 2028. So staying below "the threshold" for three straight years increasingly means staying below £20,000 of gross income. For most working sole traders, that makes the income exit more theoretical than real: if the business is alive, you're probably staying in.
The exits that work differently
- Closing the business. If you stop trading altogether, the quarterly cycle ends with the business: the regulations provide for a final quarterly update period ending on the date the obligations terminate. Winding down isn't the same as dipping below the threshold.
- Exemption on other grounds. Digital exclusion and the other exemption routes are separate from income, and some apply automatically. Who's exempt, and how applying works.
- And in every case: being out of MTD doesn't mean being out of tax. In HMRC's words, you "must continue to report your income and gains in a Self Assessment tax return as normal".
Quick answers
My income fell below £50,000 this year. Am I out of MTD next April?
No. Regulation 24 of the 2026 Regulations requires your qualifying income to have been at or below the threshold for three consecutive tax years while in MTD, and no release is possible for any tax year before 2029-30.
Is the MTD threshold tested on profit or turnover?
Turnover, in effect: qualifying income is your gross income from self-employment and property before expenses are deducted. A low-profit year on normal takings doesn't bring you below it.
What if I close my business entirely?
That's a different route. The obligations end with the business, and the regulations provide for a final quarterly update period ending on the termination date. It's not the three-year income test.
If I do get out of MTD, do tax returns stop?
No. HMRC's guidance says you must continue to report your income and gains in a Self Assessment tax return as normal. Leaving MTD ends the digital-records and quarterly-update duties, not tax itself.
In for three more years? Make them effortless
If MTD is staying, the fix is records that build themselves: snap receipts, drive as normal, and always know the tax to set aside. 14 days free, no card needed.
Join the betaSources: The Income Tax (Digital Obligations) Regulations 2026 (S.I. 2026/336), regulation 24, legislation.gov.uk (read 8 July 2026; the 2021 Regulations were revoked from 1 April 2026); gov.uk, work out your qualifying income for Making Tax Digital for Income Tax (updated 29 January 2026); find out if and when you need to use Making Tax Digital for Income Tax (updated 26 March 2026); find out if you can get an exemption (updated 28 May 2026). Checked on 8 July 2026.