MTD Threshold Reductions Timeline: 2026 vs 2027 vs 2028

Making Tax Digital for Income Tax Self Assessment is rolling out in three waves, each lowering the qualifying income threshold to bring more taxpayers into the regime. If you are not affected in 2026, you may well be caught by 2027 or 2028. Understanding the timeline lets you prepare in advance rather than scrambling when your threshold arrives.

This guide covers the exact thresholds, the dates, who falls into each wave, how qualifying income is calculated, and what preparation you need at each stage. For the broader MTD picture, see our complete small business MTD guide.

The Three Waves of MTD ITSA

Cumulative impact: By April 2028, approximately 3.3 million UK taxpayers will be within MTD ITSA. This is the largest change to UK personal tax reporting since Self Assessment was introduced in 1996.

Wave 1: April 2026 (£50,000+ Qualifying Income)

Who Is Affected

You are in Wave 1 if your total qualifying income from self-employment and/or property exceeds £50,000 in the relevant tax year. This includes:

• Self-employed sole traders with gross trading income over £50,000
• Landlords with gross rental income over £50,000
• Individuals with combined self-employment plus property income over £50,000

Partners in partnerships where individual partner share of qualifying income exceeds £50,000

Key Details for Wave 1

• First quarterly submission due: 5 August 2026 (for Q1: 6 April to 5 July 2026)
• Final Declaration for 2026/27 due: 31 January 2028
• Registration with HMRC should be completed before 6 April 2026
• MTD-compatible software must be set up and operational by April 2026

Preparation Timeline for Wave 1

For detailed registration steps, see our MTD registration walkthrough. For software options, see our best apps for MTD guide.

Wave 1 urgency: If you earn over £50,000 and have not started preparing, you are behind. Software setup, bank feed connection, and workflow learning take 2 to 4 weeks minimum. Registration with HMRC can take 1 to 2 weeks to process. Start immediately.

Wave 2: April 2027 (£30,000+ Qualifying Income)

Who Is Affected

You are in Wave 2 if your qualifying income is between £30,000 and £49,999. You are not required to comply in April 2026, but your obligation begins one year later.

• Self-employed sole traders with gross trading income of £30,000 to £49,999
• Landlords with gross rental income of £30,000 to £49,999
• Combined self-employment plus property income of £30,000 to £49,999
• Partners with individual qualifying income of £30,000 to £49,999

Key Details for Wave 2

• First quarterly submission due: 5 August 2027 (for Q1: 6 April to 5 July 2027)
• Final Declaration for 2027/28 due: 31 January 2029
• Registration should be completed before 6 April 2027
• You have until March 2027 to set up software and workflows

Preparation Timeline for Wave 2

Wave 2 advantage: You have the benefit of watching Wave 1 for a full year before your obligation begins. Software will be more mature, common problems will be documented, and accountants will have operational experience. Use this time to prepare calmly rather than rushing.

Wave 3: April 2028 (£20,000+ Qualifying Income)

Who Is Affected

You are in Wave 3 if your qualifying income is between £20,000 and £29,999. This is the largest wave by taxpayer numbers, bringing in the widest group of small-scale self-employed individuals and landlords.

• Self-employed sole traders with gross trading income of £20,000 to £29,999
• Landlords with gross rental income of £20,000 to £29,999
• Part-time self-employed individuals (teachers, nurses, office workers with side businesses)
• Small-scale landlords with 2 to 3 properties at moderate rents

Key Details for Wave 3

• First quarterly submission due: 5 August 2028
• Registration should be completed before 6 April 2028
• Two full years to prepare from today

Preparation Timeline for Wave 3

Wave 3 Special Considerations

Wave 3 brings in many taxpayers who have never considered quarterly reporting. Part-time self-employed individuals (teachers with tutoring income, nurses with agency shifts) may not even realise they are affected. Landlords with 2 to 3 modest rental properties may not associate themselves with ‘Making Tax Digital’ at all.

If you earn between £20,000 and £30,000 from self-employment or rental income, the most important thing you can do right now is understand that MTD ITSA will apply to you from April 2028. Start planning now, not in 2028.

Below £20,000: What Happens If You Are Not Caught by Any Wave?

If your qualifying income is below £20,000, MTD ITSA does not currently apply to you. You continue with traditional Self Assessment (if required) or no filing obligation (if below the Self Assessment threshold).

Will the Threshold Drop Further?

HMRC has not confirmed any plans to reduce the MTD ITSA threshold below £20,000. However, the long-term direction of travel is clear: HMRC wants to digitise all tax reporting eventually. It is reasonable to expect further threshold reductions in future years, though no specific dates or figures have been announced.

Voluntary early adoption: Even if you are below the threshold, you can voluntarily sign up for MTD ITSA. Some businesses choose to do this because quarterly digital reporting gives them better financial visibility. However, voluntary adoption carries the same quarterly filing obligations and penalty risks as mandatory participation.

How Qualifying Income Is Calculated (The Detail That Catches People)

The threshold is based on gross qualifying income, not profit. This distinction catches many taxpayers who assume their low profit keeps them below the threshold.

Qualifying Income Includes

• Gross self-employment income (total turnover before deducting expenses)
• Gross rental income (total rents received before deducting mortgage interest, repairs, etc.)
• Combined total of all qualifying sources

Qualifying Income Does NOT Include

• PAYE employment income (reported by your employer)
• Pension income
• Dividend income
• Bank interest
• Capital gains
• State benefits

Worked Examples

The last example is critical: A sole trader with £55,000 turnover but only £15,000 profit after expenses is IN Wave 1 because the threshold is based on gross income (£55,000), not profit (£15,000). Many taxpayers incorrectly assume their low profit exempts them. It does not. Check your gross income, not your net profit.

For full details on qualifying income calculations, see our MTD qualifying income guide.

What If Your Income Is Near the Threshold?

Income Fluctuates Year to Year

If your income is near a threshold boundary (say, £48,000 to £52,000), you may fall in and out of MTD ITSA as your income fluctuates. Once you are registered for MTD ITSA, you remain registered even if your income drops below the threshold in a subsequent year. HMRC will review and may deregister you, but this is not automatic. Plan as if you will remain within MTD once caught.

Income Growing Towards the Threshold

If your income is currently £25,000 but growing at 15% per year, you will cross the £30,000 threshold within 2 years and the £50,000 threshold within 5 years. Consider adopting MTD-compatible software now, even before the obligation triggers. The workflow habit is easier to build when you have time rather than under deadline pressure.

Deliberately Reducing Income to Stay Below Threshold

Some taxpayers consider reducing their gross income to stay below the MTD threshold. This is almost never a good idea. Earning less to avoid quarterly digital filing is an irrational trade-off. The compliance burden of MTD (approximately 1 hour per quarter with proper software) does not justify losing thousands in income. Do not let MTD compliance fear drive poor business decisions.

How MTD VAT and MTD Corporation Tax Fit the Timeline

MTD ITSA is not the only MTD regime. The complete picture includes:

For VAT-specific thresholds, see our MTD VAT threshold guide. For Corporation Tax preparation, see our MTD limited companies guide.

Case Study: Preparing a Wave 2 Taxpayer 18 Months Early

A part-time yoga instructor and landlord based in the Oxford area contacted us in late 2025 after reading about MTD ITSA. She earned approximately £18,000 from yoga classes (self-employed) and £16,000 from rental income on two flats in Oxford. Combined qualifying income: £34,000. This placed her in Wave 2 (April 2027), giving her 18 months to prepare.

Her situation:

• Combined qualifying income £34,000 (Wave 2)
• Currently filing Self Assessment annually via HMRC portal
• No accounting software (used spreadsheet and paper receipts)
• Not VAT-registered (below threshold)
• Worried about cost of compliance (income modest after expenses)

What we did:

1. Confirmed she was Wave 2 (April 2027, not April 2026) and had 18 months
2. Set up FreeAgent free via her existing NatWest account (zero software cost)
3. Connected bank feed for both her personal business account and rental income account
4. Configured separate tracking for yoga income and rental income within FreeAgent
5. Trained her on the weekly 15-minute reconciliation habit
6. Identified £1,100 in previously unclaimed expenses (professional development courses, yoga equipment, home office for class planning)
7. Ran a ‘shadow quarter’ in Q4 2025/26 to practise the quarterly workflow without actually filing
8. Plan: register with HMRC in January 2027, go live April 2027 fully prepared

Outcome: 18 months of calm preparation instead of last-minute panic. Software cost: £0. Previously unclaimed expenses: £1,100 per year (reducing tax by approximately £440 at 40% marginal rate due to rental income interaction). Our fee: £80 per month starting from April 2027 (she self-manages until then with quarterly check-in calls at no charge). She described the shadow quarter as ‘the most useful thing anyone has suggested’ because it removed all the fear from the actual go-live.

MTD Threshold Reductions: FAQs

What are the MTD ITSA threshold reductions?

£50,000 from April 2026 (Wave 1). £30,000 from April 2027 (Wave 2). £20,000 from April 2028 (Wave 3). Based on gross qualifying income from self-employment and property combined.

Is the threshold based on gross income or profit?

Gross income (turnover for self-employment, gross rents for property). Not profit. A business with £55,000 turnover and £15,000 profit is above the £50,000 threshold because gross income is what counts.

What is qualifying income?

Gross self-employment income plus gross property income. Does NOT include PAYE employment, pensions, dividends, bank interest, or capital gains.

I earn £45,000. When does MTD apply to me?

Wave 2 (April 2027) when the threshold drops to £30,000. You are not required to comply in April 2026. Use the 18-month window to prepare calmly.

I earn £25,000 from self-employment. When am I affected?

Wave 3 (April 2028) when the threshold drops to £20,000. You have over 2 years to prepare.

What if my income fluctuates around the threshold?

Once registered for MTD ITSA, you remain registered even if income drops below the threshold temporarily. HMRC may deregister you after review, but this is not automatic. Plan as if you will remain within MTD once caught.

Will the threshold drop below £20,000?

Not confirmed. HMRC has not announced further reductions. However, the long-term direction is towards universal digital tax reporting. Further reductions are plausible but no dates or figures exist.

Can I voluntarily adopt MTD before my threshold wave?

Yes. Voluntary adoption gives you the same quarterly filing obligations and benefits (better financial visibility). Some businesses find it easier to start voluntarily when they have time rather than under mandatory deadline pressure.

Does PAYE income count towards the threshold?

No. PAYE employment income is not qualifying income for MTD ITSA. Only self-employment and property income count. However, if you have qualifying income above the threshold, ALL your income (including PAYE) is reported in the Final Declaration.

What about partnerships and the threshold?

The threshold applies to each individual partner’s share of qualifying income, not the partnership’s total income. If Partner A receives £55,000 and Partner B receives £25,000, only Partner A is in Wave 1.

How many people does each wave affect?

Wave 1 (£50k+): approximately 780,000. Wave 2 (£30k+): additional 900,000. Wave 3 (£20k+): additional 1,600,000. Total by 2028: approximately 3.3 million UK taxpayers.

Should I start preparing now even if I am Wave 2 or 3?

Yes, at a measured pace. Choose software now (especially if free options are available). Build the weekly bookkeeping habit. Learn the landscape by watching Wave 1. Formal registration and submission preparation can wait until 3 to 6 months before your wave.

Does MTD VAT threshold interact with MTD ITSA threshold?

They are separate. MTD VAT applies based on VAT registration (£90,000+ turnover). MTD ITSA applies based on qualifying income thresholds. You can be subject to both (a VAT-registered sole trader with £60,000 income faces MTD VAT and MTD ITSA simultaneously).

What is a shadow quarter and should I do one?

A shadow quarter is a practice run: you track income and expenses quarterly using MTD software but do not actually submit to HMRC. It lets you learn the workflow without real consequences. Highly recommended for Wave 2 and Wave 3 taxpayers.

My income is currently £18,000 but growing. Should I prepare?

If growing at 10%+ per year, you will cross the £20,000 threshold within 1 to 2 years. Setting up MTD software now (especially free options) builds the habit without deadline pressure. Preparation when calm is always better than preparation under pressure.

Know Your Wave. Prepare Early. Free Consultation.

Whether you are in Wave 1 (need to act now), Wave 2 (18 months to prepare), or Wave 3 (2+ years), a 30-minute consultation tells you exactly what to do and when. We tailor the preparation timeline to your specific wave and business complexity.

At MTD – Making Tax Digital (part of B1 Accountants, ICAEW Reg Z10zyrJ):

• Free threshold assessment (confirm which wave you fall into)
• Wave-specific preparation plans
• Software setup at zero cost (FreeAgent free via NatWest/RBS/Mettle)
• Shadow quarter support for early preparation
• Fixed monthly fees from £40 when your wave goes live