Can I leave Making Tax Digital if my income falls?

Yes, but not straight away. You can opt out after 3 tax years in a row with qualifying income of £20,000 or less, so the earliest anyone can leave on that basis is for 2029-30.

Making Tax Digital for Income Tax (MTD) means digital records and a quarterly update to HMRC. Once you are in, a quieter year does not take you out. The 3-year rule is in regulation 24 of the Income Tax (Digital Obligations) Regulations 2026, and the process below follows GOV.UK as checked on 16 October 2026.

The two ways to opt out

GOV.UK says you can opt out if you no longer need to use MTD because either:

• your qualifying income has been below the threshold for 3 consecutive years, or
• you amended your tax return for the previous tax year, and the change took your qualifying income below the threshold.

Qualifying income is your self-employment and property income before expenses, not your profit. The threshold from 2026-27 onwards is £20,000, and the regulations test whether income is "not more than" that, so £20,000 exactly counts as under.

For the third year, HMRC uses the figures in your fourth quarterly update, so you do not have to wait for that year's tax return.

When you could first opt out

The first row is GOV.UK's own example. The fourth quarterly update for 2028-29 must be sent by 7 May 2029, and that person would then not need MTD for 2029-30. The other rows follow the same rule.

Two worked examples

A plasterer who scaled back. Their 2024-25 turnover was over £50,000, so they joined on 6 April 2026. They then took a part-time job, and their self-employed turnover fell to £19,000 in 2026-27, £18,500 in 2027-28 and £17,000 in the fourth update for 2028-29. All three are £20,000 or less, so they can opt out for 2029-30. The wages from the job do not count.

A landlord who sold a flat. Their rent drops to £19,500 in 2027-28 but is £20,400 in 2028-29. That second year is over £20,000, so the run of 3 years is broken and has to start again.

Amending last year's return

If you correct the previous year's return after the tax year has started and it takes your qualifying income under the threshold, GOV.UK says you do not need MTD for that tax year. If you are already signed up, you can stay on voluntarily or opt out. A change after the tax year has started that takes your income over the threshold is ignored for that year.

What this means for you

If your income has dropped, keep sending your updates on time while the 3 years build up. Leaving early is not an option, and from 2027-28 a missed quarterly update earns a penalty point.

When you opt out, GOV.UK says you no longer keep digital records or send quarterly updates, any updates already sent for that tax year are deleted, and you still send a Self Assessment tax return for that year. If you do nothing, you simply carry on and your account shows that you are using MTD voluntarily. Check each year whether you need to come back in, because a later year over £20,000 brings you back.

Penalties do not go back to the old system. GOV.UK says that from April 2027 the new points-based penalties apply to everyone who submits a personal Self Assessment tax return. Its example is someone who becomes exempt in 2027-28: they stay on the new penalties, and their threshold drops from 4 points to 2. If you volunteered and agreed to the new penalties, you cannot go back to the old ones.

Steps to opt out

1. Check your qualifying income for each of the 3 years: self-employment and property income before expenses, your share only for jointly owned property. The free MTD check helps with the sums.
2. Make sure your fourth quarterly update for the third year is sent, by 7 May after that tax year ends.
3. Sign in to your HMRC online services account and select Making Tax Digital for Income Tax. If you use an agent, they do this in their agent services account.
4. Choose the opt-out option. It only appears if HMRC's records show you are eligible. If it is missing and you think it should be there, contact HMRC.
5. Send your Self Assessment tax return for that year by 31 January. You can use your MTD software or not.

If you are stopping trading or letting altogether, that is a different process: tell HMRC the date your income ceased by the quarterly deadline for that period. More guides are in the trades section and the landlord section.