Can I leave MTD Income Tax?

The short answer

You cannot leave MTD simply because this year's income is lower than last year's. There is no automatic opt-out based on a single year's figures.

There are two distinct situations, and the rules are different for each:

• Your income has reduced but you are still trading or letting. You can opt out once your qualifying income has been at or below the relevant threshold for three tax years in a row while you are in MTD.
• You have stopped all qualifying income entirely. You can notify HMRC and exit MTD without waiting three years.

The rest of this page explains both situations in detail.

If your income has reduced but you are still trading or letting

Once you are in MTD, you can opt out when your qualifying income has been £20,000 or less for three tax years in a row. HMRC uses your tax returns for the first two years and your fourth quarterly update for the third. One year back over £20,000 starts the count again.

£20,000 is the threshold from April 2028. It is lower than the level that brought most people in, so your income may need to fall further than you expect.

If you can opt out, the option appears in your HMRC online services account, or your agent's account. It only appears if you are eligible. The worked example below shows how the years count.

Worked example

Sarah is a sole trader. Her income was £58,000 in 2024/25, so she started MTD in April 2026. She then cut her hours and her income fell.

That is three years in a row at £20,000 or less. Once she has sent her fourth quarterly update for 2028/29 (due 7 May 2029), she can opt out in her HMRC online account. She does not need to use MTD from the 2029/30 tax year.

What if one year goes over £20,000? Say Sarah's income for 2027/28 had been £22,000. The count would start again. She would need three new years in a row at £20,000 or less: 2028/29, 2029/30 and 2030/31. The earliest she could leave would then be the 2031/32 tax year.

If you amend last year's tax return. You can also opt out if you amend your tax return for the previous tax year and the new figure takes your qualifying income below the relevant threshold.

If you have stopped trading or letting altogether

If all your qualifying income sources have ceased, you are not required to wait three years. You can exit MTD once you have submitted the final quarterly update covering the period in which your income stopped, and notified HMRC.

There is an important distinction here: ceasing one source of income while another continues does not qualify. If you close a sole trade business but still receive rental income from a property, you remain in MTD for the property income.

HMRC's position is that cessation only applies where every source of qualifying income has ended. If even a small amount of rental income continues, you do not qualify to leave under the cessation route; the three-year reduced-income rule may still be relevant.

How to notify HMRC of cessation

1. 1
   Submit your final quarterly update

   Cover the period up to and including the date your income ceased. You do this through your MTD software as normal.

2. 2
   Record the end date in your HMRC online services account

   Log in to your HMRC online services account and enter the date the business or property income ended. HMRC says this must be done by the quarterly update deadline for the period in which the income stopped. If you have an agent, they can do this through the agent services account. If the online route is not available or the position is unclear, contact HMRC.

3. 3
   File your final Self Assessment tax return through MTD-compatible software

   You must still file a Self Assessment return for the tax year in which your income ceased. After this, you will not need to use MTD unless you start a new qualifying income source.

If you signed up voluntarily

Voluntary sign-ups are treated differently. If you joined MTD before it became mandatory for you, you can opt out at any time and revert to annual Self Assessment. The three-year rule only applies to people who are mandated into MTD.

There is one thing to be aware of: if you opt out of MTD for a year in which you have already submitted quarterly updates, those updates will be deleted. You would then file an annual Self Assessment return for that year instead. HMRC will warn you about this before the opt-out takes effect.

If your income later rises above the relevant threshold, you would re-enter MTD on a mandatory basis and the standard exit rules would then apply.

What to do if your income is falling

If your qualifying income is declining and you think you may eventually be able to leave MTD, there are a few practical steps worth taking now.

Track your qualifying income carefully each year through your tax returns. Do not assume one low year means you are close to exiting. Check which threshold applies to each year, as the relevant figure changes as the phases roll in.

Do not stop submitting quarterly updates until you have used the HMRC online services account (or agent services account) to opt out or record the cessation correctly. After your first year in MTD, late quarterly updates can carry penalty points. The first year is 2026/27 if you joined in April 2026, or 2027/28 if you join in April 2027.* Even in that first year, you still need to send the updates before you can file the tax return.

If your income is variable or you are approaching the threshold from above, it is worth getting advice before doing anything. The interaction between the phased thresholds and the three-year exit rule is not straightforward, and the consequences of getting it wrong include penalty points and continued MTD obligations.

Common questions

*Announced in the Budget on 28 October 2026. A Budget announcement becomes law in one of two ways. Most tax changes go into the annual Finance Bill, which becomes law when it receives Royal Assent, usually early the following year. Others are made by regulations laid before Parliament. Until then, the details can change.

This page is general guidance, not advice for your own circumstances. It was correct as at the date shown at the top, and tax rules and rates change over time. Please take advice on your own position before acting on anything here.