Can You Leave MTD for Income Tax? Opting Out When Income Falls

The Short Answer

GOV.UK says "you can opt out if you no longer need to use it because" of one of two things: "you amended your Self Assessment tax return for the previous tax year taking your qualifying income below the relevant threshold", or "your qualifying income has been below the relevant threshold for 3 consecutive years".

One quiet year is not enough. Qualifying income is your self-employment and property income added together, before expenses, and the MTD checker works out yours. Which threshold counts for each of the three years is the part to read carefully, below.

Route One: Three Years Below the Threshold

This is the route for someone whose business has shrunk. Your qualifying income has to be below the relevant threshold for three tax years in a row, and you carry on using Making Tax Digital for all three.

GOV.UK works an example. Someone with qualifying income above £50,000 for 2024 to 2025 starts in April 2026. They "will be able to opt out after the end of the 2028 to 2029 tax year" if their qualifying income is £20,000 or less on their 2026 to 2027 tax return, on their 2027 to 2028 tax return, and on their fourth quarterly update for 2028 to 2029. Note the figure. GOV.UK's example uses £20,000 for all three years, including 2026 to 2027, when the threshold for having to join is £50,000. GOV.UK does not explain "relevant threshold" beyond that example, so if your income sits between £20,000 and the joining threshold for a year, ask HMRC or your accountant before you count that year.

The third year is judged early. "HMRC will use income information from your fourth quarterly update for the third year to check if you can opt out", so in the example the fourth update must be sent by 7 May 2029, and "You would then not need to use Making Tax Digital for Income Tax for the 2029 to 2030 tax year." You do not have to wait until that year's tax return has gone in.

Route Two: You Amended Last Year's Return

When you must start is worked out from a tax return you have already sent. If that return overstated your self-employment or property income and you amend it, the corrected figure may be below the threshold. GOV.UK lists this as the other reason you can opt out.

It is a correction, not a choice. Amend a return because it was wrong, and tell your accountant if you have one. GOV.UK notes elsewhere that "Changes to your tax return may affect when you need to start using Making Tax Digital for Income Tax", which cuts both ways: an amendment that raises your income can bring you in.

How to Opt Out, and What Happens Next

You do it with HMRC, not in your software. GOV.UK says "you will need to select this option in your HMRC online services account or agent services account. The option will only appear if you are eligible." If you cannot see it, HMRC does not think you qualify yet.

GOV.UK lists what follows if you opt out. The first is that "you will no longer need to create digital records or send quarterly updates". The second is that "any updates already sent will be deleted for the tax year you opt out". You must send a Self Assessment tax return for that tax year, and "you do not need to use your Making Tax Digital for Income Tax software to send this tax return, but you can if you prefer". And you "should find out if and when you need to use Making Tax Digital for Income Tax in the future", because the thresholds are still falling.

The deletion is worth a pause. Opting out part way through a year removes the quarterly updates you sent for that year, so the figures have to go to HMRC again on the Self Assessment return. Keep your records whatever you decide. The guide to what a quarterly update is and what the tax return adds explains what each one carries.

You Can Stay In

Opting out is optional. GOV.UK says "You can continue using Making Tax Digital for Income Tax if you do not opt out. Your HMRC online services account will show that you're using the service voluntarily."

Some people stay because their income moves around the threshold and they would rather not stop and start. The penalty rules for a volunteer are their own. On its page about sending quarterly updates GOV.UK says "Penalties do not apply to late quarterly updates whilst you're volunteering for Making Tax Digital for Income Tax", and of late tax returns, "If you reach 2 points, you'll get a £200 penalty."

An Exemption Is a Different Thing

Opting out is something you choose once your income has stayed down. An exemption means the rules do not apply to you. GOV.UK says exemptions are either "automatic exemptions", which "are given by HMRC based on the information we hold so you do not need to contact HMRC or submit an application", or "exemptions you need to apply for".

One you apply for is digital exclusion: you "may become digitally excluded meaning it's not reasonable for you to use compatible software to keep digital records, send quarterly updates or submit your tax return". Wanting to keep your old way of working is not a ground for it. An exemption you apply for counts once HMRC has confirmed it, so keep sending updates until then. After that, GOV.UK says "you will no longer need to create digital records or send quarterly updates" and "you must still report income and gains in a Self Assessment tax return".

Among the automatic ones GOV.UK lists is income: "You are automatically exempt and do not need to use Making Tax Digital for Income Tax if your qualifying income is £20,000 or less." GOV.UK does not say how that sits beside the three year rule for someone already using the service, so if your income has fallen to £20,000 or less, ask HMRC which applies to you before you stop sending updates. The full list of exemptions is on the GOV.UK page in the sources below.

If the Business or the Letting Has Stopped

Stopping is not opting out, and it does not end things the same day.

Landlords first, because this is where it goes wrong. All of your UK properties are one property business, so selling one of several is not a cessation. GOV.UK says "If you stop renting out a UK property but still rent out other properties, then your property business is continuing, and you do not need to tell HMRC." Entering an end date by mistake gets later updates refused, and only HMRC can correct the date; the help page on the business cessation date explains that refusal.

Where a business or all of your letting really has stopped, you tell HMRC in your HMRC online services account, and there is a time limit: "You must tell HMRC by the quarterly update deadline for the period the business or property income stopped."

If everything has stopped, GOV.UK says you must tell HMRC the date, "send the final quarterly update for the period that includes the date the income ceased", and send the tax return for that year using Making Tax Digital software. Then: "After the tax year in which the income ceased, you will not need to use Making Tax Digital for Income Tax."

If only one income source has stopped, you tell HMRC, "complete all outstanding quarterly updates for that source from when the income was active", and carry on with the others.

Leaving Your Software Is Easier Than Leaving MTD

If what you want to leave is the software, you can. GOV.UK says "You can change the software you use for Making Tax Digital for Income Tax at any time, but you may find it easier to change your software at the end of the tax year." The records still have to be kept: "you will still need to store your digital records for at least 5 years from the submission deadline for each tax year".

It is also why the pricing model matters here. With a subscription, a year in which you may or may not still be in Making Tax Digital is a year of monthly payments either way. FileThat charges per filing, so there is nothing to cancel: if you opt out and stop sending updates, you stop paying, and the Income and Expenditure ledger stays free for your records. The pricing page has the detail, and the cheapest MTD software comparison sets it beside a year of subscription.