Making Tax Digital · Sole traders
What happens if your turnover drops below the MTD threshold?
ONLY£15A MONTHA quieter year does not automatically switch off Making Tax Digital.
A quieter year does not automatically switch off Making Tax Digital. Before stopping quarterly updates, establish why you entered MTD and which exit rule applies. Falling income, correcting an earlier return and ceasing a business are different situations.
One low year is not normally enough
HMRC's change-of-circumstances guidance explains when you can opt out. The general income route requires qualifying income at or below the relevant threshold for three consecutive tax years. The relevant thresholds change as the rollout expands.
Do not use £50,000 as a permanent exit threshold. HMRC's example for the April 2026 cohort requires qualifying income of £20,000 or less in each of 2026/27, 2027/28 and 2028/29, using the fourth update for the third year. After the required reporting and eligible opt-out, MTD would no longer be required for 2029/30. The entry thresholds for later cohorts should not be substituted for that three-year exit test.
A corrected return or cessation needs separate attention
An amendment to the return used for mandation may change whether you were required to join. HMRC's qualifying-income guidance distinguishes amendments and their timing. If all relevant businesses cease, tell HMRC and complete the outstanding reporting required for the cessation year.
Closing one activity while another continues does not necessarily remove the obligation. Check the remaining business and the historical income used in the test rather than simply deleting the closed source from software.
Worked example: a quieter second year
Elliot's qualifying income was £58,000 in 2024/25, so MTD begins in April 2026. Later turnover falls to £42,000. Elliot should not stop updates just because that is below £50,000: the entry decision used an earlier year, the three-year rule needs considering and future thresholds are lower.
If instead the original £58,000 included a genuine reporting error, an amended return raises a different question. The records and HMRC process should reflect the correction.
Where this fits into Making Tax Digital
For 2026/27, the first mandatory phase generally covers individuals whose combined qualifying self-employment and property income was more than £50,000 in 2024/25, subject to exemptions. Qualifying income normally means income before expenses. It is a different figure from taxable profit. Check the qualifying-income rules.
Once within MTD, keep the required digital records and send quarterly summaries for each relevant business. The summaries are cumulative from the start of the reporting year. They do not contain your entire personal tax position, and sending one does not itself create a quarterly tax-payment demand.
HMRC does not require accounting or tax adjustments before each quarterly update. Those adjustments and the other information needed for the annual return still have to be completed at the appropriate stage. Keep a review list so a matter deferred until year end is not forgotten. Read HMRC's quarterly-update guidance.
Software can organise the information, but the business facts remain essential. Review the figures you approve rather than assuming that a successful import has also settled every tax question.
Keep the reporting dates separate from payment dates
The standard first update for 2026/27 covers 6 April to 5 July 2026 and was due by 7 August 2026. The second covers 6 April to 5 October 2026 and is due by 7 November 2026. The third and fourth deadlines are 7 February 2027 and 7 May 2027. These are cumulative updates, not four isolated sets of three-month totals.
Calendar periods have different cut-offs and the same filing deadlines. Check the setting for each business rather than assuming the dates from a bank statement. HMRC lists both reporting calendars.
The annual return for 2026/27 is due by 31 January 2028. The earlier 2025/26 return normally remains due online by 31 January 2027. Keeping those years distinct avoids a common transition-year misunderstanding.
Payments on account, where required, follow their own January and July timetable. An update acknowledgement confirms a reporting event; it does not confirm that an outstanding tax bill has been paid. Check your actual HMRC account and payment obligations separately from the software's progress indicators.
Keep the evidence connected to the figures
Your digital record should explain the amount, date and nature of the transaction. Keep the invoice, receipt, statement or other evidence that supports it. A photograph can make a paper document easier to retain, but a folder of photographs alone does not create complete transaction records.
For sole traders, HMRC normally requires business records to be kept for at least five years after the relevant 31 January filing deadline. Keep them longer where the rules for a late return, enquiry or other circumstances require it. Check the record-retention guidance.
Make the records usable by your future self. Include a short explanation where a bank description is vague, retain the calculation behind a business-use split and make corrections traceable. For a missing receipt, try the supplier account, email confirmation or a replacement invoice before relying on incomplete evidence.
At review time, compare your records with the bank or payment account and investigate differences. Equal totals are useful, but two errors can cancel each other out. A sample of individual transactions can reveal a duplicated purchase or an omitted customer receipt that a totals-only check misses.
Before changing your reporting method
Check the relevant tax years, use HMRC's opt-out or cessation process and retain the confirmation. Continue meeting obligations while clarifying your position. Keeping useful digital records voluntarily may still make sense even when an exit route is available.
Take the next step
Avona.app offers a self-service route from £15/month. Bring your records together, review the figures and choose a workflow that fits your business. For professional help, discuss the scope and total price of Avona Concierge, managed by chartered accountants, before choosing a service.