What the £50,000 Threshold Actually Means

The £50,000 MTD threshold confuses almost everyone. Here’s what it really means in plain English, without the jargon.

The Simple Answer

If your business brings in £50,000 or more in a year, you need to comply with Making Tax Digital from April 2026.

But here’s where it gets confusing: it’s not £50,000 profit. It’s £50,000 in total income before you deduct any expenses.

Think of it as: “How much money came into your business?” not “How much did you keep after paying bills?”

The Number That Matters: Gross Income

Gross income = All the money your business receives.

This is sometimes called:

• Turnover
• Sales
• Revenue
• Total receipts

It’s NOT:

• Profit (what’s left after expenses)
• Taxable income
• Take-home pay

Real-World Example

You run a plumbing business:

Money coming in (invoices to customers):

• January–December: £65,000

Money going out (your expenses):

• Van lease: £4,000
• Materials: £18,000
• Insurance: £2,500
• Tools: £3,000
• Fuel: £6,000
• Phone: £800
• Accountant: £1,200
• Total expenses: £35,500

Your profit: £65,000 – £35,500 = £29,500

For MTD purposes, the relevant number is £65,000 (your gross income), not £29,500 (your profit).

Result: You’re caught by MTD because £65,000 exceeds the £50,000 threshold.

Why This Catches People Out

Many sole traders assume MTD is based on profit because that’s what they pay tax on.

“I only made £25,000 profit last year, so MTD doesn’t apply to me.”

But if your turnover was £55,000 and your expenses were £30,000, you’re in scope for MTD even though your profit was only £25,000.

The Reasoning

HMRC uses gross income (not profit) because:

1. It’s harder to manipulate everyone agrees on how much came in; expenses are subjective
2. It’s consistent you know your gross income the day you invoice; profit depends on what you claim as expenses
3. It matches VAT registration VAT also uses a turnover threshold (currently £90,000)

Where to Find Your Gross Income

If You File Self Assessment

Look at your most recent tax return (2024/25):

Self-employed (SA103 pages):

• Box 15: “Turnover” or “Business income”
• This is your gross income

Landlords (SA105 pages):

• Box 20: “Total rents and other income from property”
• This is your gross rental income

If you have both: Add them together (self-employment + property income).

If You Don’t File Self Assessment Yet

Look at your records for the 2024/25 tax year (6 April 2024 – 5 April 2025):

• Add up all invoices sent to customers
• Add all cash sales
• Add any other business income

Don’t subtract anything. Just total up what came in.

What Counts Toward the £50,000?

✓ INCLUDED

Self-employed income:

• Sales of products
• Fees for services
• Commission
• Tips and gratuities
• Cash income
• Online sales (eBay, Etsy, Amazon, etc.)

Property income:

• Rent from tenants
• Holiday let bookings
• Airbnb/Vrbo income
• Commercial property rent

Combined income: If you have both self-employment and property income, add them together.

✗ NOT INCLUDED

• PAYE salary from a job
• Dividends from a limited company
• Interest from savings
• Capital gains from selling assets
• Pension income
• Benefits (Universal Credit, etc.)

Example: Combined Income

You have:

• Self-employed dog grooming business: £32,000
• Rent from a buy-to-let property: £22,000
• PAYE job as a teacher: £28,000

Your MTD threshold income: £32,000 + £22,000 = £54,000

(The teacher salary doesn’t count)

Result: You exceed £50,000, so MTD applies to you.

The Thresholds Are Dropping

The £50,000 threshold only applies for 2026/27 (starting 6 April 2026).

After that, it drops:

2026/27: £50,000
2027/28: £30,000
2028/29: £20,000

What This Means

If you’re at £45,000 now:

• Not caught in 2026/27
• Will be caught in 2027/28 (when threshold drops to £30,000)

If you’re at £25,000 now:

• Not caught in 2026/27 or 2027/28
• Will be caught in 2028/29 (when threshold drops to £20,000)

Most sole traders and landlords will eventually be in scope for MTD. It’s a question of when, not if.

Quick Threshold Test

Answer these three questions:

1. What was your total business income (turnover) for 2024/25?

• Under £50,000 → Not caught (for now)
• £50,000 or more → Caught

2. Do you have rental income too?

• Yes → Add it to your business income
• No → Just use business income

3. What’s your combined total?

• Under £50,000 → You’re not in scope for 2026/27
• £50,000 to £49,999 → Monitor closely
• £50,000 or more → You need MTD from April 2026

What Happens If You Cross the Threshold Mid-Year?

Good question. The threshold is based on your previous year’s income, not current year.

Example:

2024/25 (last year): You earned £45,000 → Under threshold
2025/26 (this year): You earn £60,000 → Over threshold

When does MTD apply?

MTD applies from April 2027 (the tax year after you first exceeded the threshold).

So you have until April 2027 to prepare. You’re not suddenly non-compliant mid-year.

However: If you know you’ll exceed the threshold this year, start preparing now. You’ll need to be MTD-ready in 12 months.

The Bottom Line

The £50,000 threshold means:

✓ Total income (turnover/sales/revenue)
✓ Before expenses (gross, not profit)
✓ All business income combined (self-employment + property)
✗ NOT salary, dividends, or other non-business income

If you earned £50,000 or more in 2024/25, MTD applies from 6 April 2026.

If you’re close (£45,000+), start preparing anyway the threshold drops to £30,000 next year.

Don’t wait until March 2026 to figure this out. Check your threshold position now.

Need Help Calculating Your Threshold?

We offer a free threshold assessment:

✓ Review your last tax return
✓ Calculate your exact MTD threshold position
✓ Tell you whether MTD applies to you
✓ Give you a preparation timeline if it does

Book a free assessment 15 minutes, no obligation.

Call: 03301 332 533

Related Guides

• Do I Qualify for Making Tax Digital?
• The Complete MTD Compliance Checklist
• MTD for Landlords: Do Rental Properties Qualify?
• How to Register for MTD with HMRC

About This Guide

Written by the MTD Compliance Team at MakingTaxesDigital.com UK accountants who explain tax in plain English (no jargon, no confusion).

Questions? Email hello@makingtaxesdigital.com

Last updated: 28 January 2026