An explanation of how a taxpayer with a single small business or property income source might be included in MTD ITSA when its revenue is less than the MTD ITSA threshold
This page explains the basis of the rules behind one of the more surprising outcomes of Making Tax Digital for Income Tax Self Assessment (MTD ITSA).
In examines and explains how a taxpayer can be brought into MTD ITSA on the basis of historic qualifying income, and then remain subject to the regime even where only a small business or property activity continues.
This outcome is not simply an edge case or a misunderstanding of the rules. It follows from the interaction of:
the way entry into MTD ITSA is defined in legislation,
the absence of a low-income or de minimis exit once a taxpayer is within the regime, and
HMRC’s published guidance and confirmed operational position.
The specific implication highlighted on this site only becomes apparent when the historic entry rules are considered alongside the lack of a simple low-income exit.
Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is imposed by law through the Income Tax (Digital Requirements) Regulations and related statutory instruments.
Formal consultation on Making Tax Digital began in 2017, with the aim of introducing digital record-keeping and reporting for income tax. The legislative framework for MTD ITSA was introduced in 2021, setting out how taxpayers would be brought within the regime and the obligations that would apply once they were in scope.
Under the legislation:
Whether a taxpayer is required to use MTD ITSA is determined by their qualifying income from a prior tax year
Once a taxpayer is brought within MTD ITSA, the legislation does not provide an exit simply because income later falls to a low level
Exit is permitted only where:
all self-employment and property income ceases, or
qualifying income remains below the statutory exit threshold for three consecutive tax years
The regulations have been amended several times, including 2023 and 2024, primarily to:
defer the start of MTD ITSA, and
adjust income thresholds and the timetable for mandation.
These amendments did not change the underlying structure of the regime. In particular, the legislation has never been amended to introduce a low-income or de minimis exit once a taxpayer has been brought into MTD ITSA.
The outcome described on this site therefore follows directly from the legislation as it currently stands, rather than from guidance, discretion, or administrative practice.
HMRC’s published guidance explains how the MTD ITSA legislation is applied in practice. While guidance does not create legal obligations, it is the primary source taxpayers and advisers rely on to understand what HMRC will require them to do.
The guidance page Work out your qualifying income for Making Tax Digital for Income Tax was first published in October 2024. It was updated on November 2025 with information about ceased businesses. The new text is set out below:
Self-employment or property income that has ceased since you submitted your last tax return will be included in your qualifying income, if you have another continuing source of self-employment or property income.
For example, you may have had 3 different sources of self-employment income on your tax return for the 2024 to 2025 tax year. If one of these sources ceased during that tax year but you continue to receive income from the other 2 sources, the income received from the ceased source will still count towards your qualifying income.
If your income from self-employment or property (including income from ceased sources) is more than the relevant threshold, you’ll need to use Making Tax Digital for Income Tax.
Once you start using the service and your qualifying income drops below the relevant threshold for 3 tax years in a row, you can choose to opt out".
Freedom of Information (FOI) responses are particularly important because they confirm HMRC’s settled operational position, rather than informal guidance or hypothetical interpretation. These confirmations below are consistent with HMRC’s published guidance and follow directly from the legislation. They demonstrate that the outcome described on this site is not an unintended quirk of guidance, but a consequence of how the MTD ITSA rules are designed and operated.
HMRC responded to FOI-2025/162436 on 7 November 2025. The reply was comprehensive and included information about ceased income. The author considered this to be alarming so sought confirmation in FOI-2025/186115; HMRC responded quickly on 03 December 2025. The reply on confirmed the position stated in FOI-2025/162436, an extract is quoted below
"In the example provided, the combined qualifying income in the 2024/25 tax year is £60,000 (£40,000 (SA103) and £20,000 (SA105)). Even though one source of qualifying income has ceased, the customer would be required to use MTD for Income Tax obligations from 6 April 2026 for the remaining source of qualifying income, even if it is below the mandation threshold for that year."