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Making Tax Digital: The Threshold Is Measured On Turnover, Not Profit

ended 31. July 2026

The single most common misunderstanding about Making Tax Digital for Income Tax is not the software or the deadlines. It is the number that decides whether you are in it at all. Qualifying income is measured on gross trading and property income before any expenses, before the trading allowance, and before any relief. It is not profit. So a sole trader turning over well above the threshold on thin margins is in, quarterly filing and all, while a business with far higher profits and lower turnover may not be. Someone with a small trade and a small rental adds the two gross figures together, which catches people who would never describe themselves as either a business owner or a landlord.

The second trap is the lag. The threshold is tested against the figures on a tax return that has already been filed, so the year that decides whether you file quarterly is a year that is already over by the time you find out. Nobody gets a chance to manage down to it. The people caught hardest are low-margin traders, part-time landlords and side-hustlers, the exact group least likely to have an accountant watching the threshold for them.

Is measuring Making Tax Digital on gross turnover rather than profit the right test, or does it pull in the people least able to carry the extra admin?

Who is caught by the turnover test that you would not expect, and how often do clients discover it only when it is too late to plan?

What should someone do now to work out whether they are in, and do you have a client who was surprised to find themselves inside the regime? If so, please give as much colour and detail as possible.

2 responses from the Newspage community

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Editor
Harvey Dhillon
Founder & CEO at Zmartly
Making Tax Digital is not tested on profit. It is tested on turnover, the money coming in before costs. That is the wrong test. A trader turning over £60,000 on thin margins is pulled into quarterly filing, while a business with far more profit and lower turnover stays out. It hits tight margins hardest, not the people with the most money.

The surprise I see most is small jobs mixed with small rents. Picture a plumber who also lets one flat. He never called himself a landlord, but his takings plus his rent can clear £50,000 without him feeling wealthy.

The bigger trap is timing. HMRC tests a year already filed, a year already over, so nobody gets a chance to plan before it counts.

Do this today: add up your gross self-employment and property income from your last return, not profit, and check it against £50,000. That line falls to £30,000 from April 2027, then £20,000 from April 2028.

Test people on turnover and you catch the busiest, not the richest.
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Editor
David Stirling
Independent Financial Adviser at Mint Wealth
Making Tax Digital contains a trap so neatly designed it almost looks deliberate. The threshold is gross income, not profit, which means a sole trader turning over £52,000 on wafer-thin margins is inside the regime, filing quarterly and buying software, while someone earning far more in actual profit on lower turnover sits comfortably outside it. Add a small rental to a modest side trade and two unremarkable income streams combine to pull someone over a threshold they never knew existed.

The year that decides whether you are in is already over by the time anyone tells you, so there is no opportunity to plan. The government has not explained convincingly why gross turnover is the right test for a regime this burdensome. The answer, one suspects, is that profit would catch far fewer people.