Leaving MTD for Income Tax: opt-out rules
Crossing the threshold once locks you in. HMRC does not let you out automatically the year your income drops below £50k, £30k, or £20k again. There are three ways out: meet HMRC's opt-out test (which uses different thresholds for different years), cease the source entirely, or qualify for an exemption.
By Mehmet Demir · Last reviewed: 2 May 2026 · Source: HMRC · Methodology
Bottom line
1. The opt-out test. The thresholds in the test are not all the one you were mandated under. For the April 2026 group, HMRC's example requires £30k or less for 2025-26, £20k or less for 2026-27, and £20k or less based on the fourth quarterly update for 2029-30. Earliest opt-out is after the end of 2029-30.
2. The income source ceases. If you stop self-employment or rental property entirely, you send a final quarterly update for the period the source ceased, include it on your tax return, and you are out from the next tax year.
3. Approved exemption. If you become digitally excluded (age, health, disability, religion, no internet) you can apply for an exemption. There are also automatic exemptions for specific situations.
The opt-out test, in HMRC's own words
HMRC's example for someone in the April 2026 group is the clearest statement of the rule:
"If you need to start using Making Tax Digital for Income Tax in April 2026, you will be able to opt out after the end of the 2029 to 2030 tax year, if your qualifying income is:"
- £30,000 or less based on your 2025 to 2026 tax return
- £20,000 or less based on your 2026 to 2027 tax return
- £20,000 or less based on your fourth quarterly update for 2029 to 2030
In other words: the thresholds in the opt-out test are not all the £50,000 figure you were originally mandated under. They mirror the £30,000 and £20,000 thresholds for the groups below you, plus a final in-MTD-period confirmation in 2029-30. The earliest you can leave is after the end of the 2029-30 tax year, not after three quiet years.
Source: GOV.UK: Use Making Tax Digital for Income Tax, If your circumstances change
Worked example: April 2026 group with falling income
Scenario: you crossed the £50,000 threshold in 2024-25 and your income then trended down.
- 2024-25: over £50,000. Mandated from 6 April 2026.
- 2025-26: qualifying income must be £30,000 or less to keep the opt-out path open.
- 2026-27: qualifying income must be £20,000 or less.
- 2027-28 and 2028-29: still mandated. No opt-out checkpoint in these years; you keep filing quarterly updates as normal.
- 2029-30: the fourth quarterly update for 2029-30 must show qualifying income of £20,000 or less.
- After end of 2029-30: if all three checkpoints met, you can opt out from 6 April 2030.
In the meantime you keep digital records and submit quarterly updates normally. Bridging software (which HMRC permits) is the cheapest route if you want to stay on a spreadsheet.
Miss any of the checkpoints (income above the relevant threshold in any of the three test years) and you remain mandated past 2030-31. HMRC has not published a general rule for what happens next; expect to wait for a similar future window.
If your source ceases entirely
Selling your only buy-to-let, or winding down your sole-trader business, is treated differently from a year-on-year income drop. HMRC's guidance: send a final quarterly update for the period that includes the date the income ceased, include the ceased income on your tax return for that year, and from the following tax year you do not need to use MTD.
If you later restart a qualifying source (start renting again, return to freelance work) the threshold check restarts based on your current income.
Applying for an exemption
Some people qualify for exemption regardless of the opt-out test. There are two categories:
Automatic exemptions (no application needed)
- Qualifying income of £20,000 or less.
- No National Insurance number before the start of the tax year.
- Declared in your 2024-25 tax return that you are not physically or mentally capable of providing financial information to HMRC.
- Filed an SA102M (Minister of religion) supplementary page in your 2024-25 return.
- Non-resident companies, trusts, and personal representatives of deceased individuals.
Digital exclusion (application required)
- Age, health condition, or disability that prevents you from using a computer or smartphone.
- Practising member of a religious society whose beliefs are incompatible with using digital communications.
- No internet access at your location.
HMRC will reject digital-exclusion applications based on unfamiliarity with software or simply preferring paper. The bar for "genuinely unable" is high.
Sources: GOV.UK: Find out if you can get an exemption from MTD for Income Tax · GOV.UK: Apply for an exemption if you are digitally excluded
Practical notes while you wait
- You still file quarterly. Until HMRC removes you, you must keep digital records and submit four quarterly updates plus an end-of-year submission each year.
- Bridging software is allowed. If you use a spreadsheet you can stay on it with bridging software (e.g. 123 Sheets) rather than switching to a full accounting package. See Free and low-cost MTD software.
- Penalties still apply. Quarterly updates are not penalised in 2026-27, but late quarterly updates from 2027-28 onwards earn points under HMRC's points-based system. See the MTD penalties guide.
- Track your numbers. Keep your qualifying income figures for each year so you know whether you are still on the opt-out path.
FAQs
I crossed the £50k threshold in 2024-25 but won't in 2025-26 or 2026-27. Am I stuck in MTD?v
Why £30,000 for 2025-26 and £20,000 for 2026-27?v
What if I stop being self-employed or sell the rental property entirely?v
Can I get out by claiming I am not good with computers?v
My only income is rental and it is below £20,000 a year. Do I have to do MTD?v
Do I have to keep using software in the years I am still mandated but below the threshold?v
How do I actually opt out once I qualify?v
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