Making Tax Digital for Income Tax is now in place for the first group of sole traders and landlords, changing how thousands of people across the UK keep records and report their income to HMRC.
From 6 April 2026, individuals with qualifying income of more than £50,000 from self-employment and property based on their 2024–25 tax return are required to use Making Tax Digital for Income Tax. This means keeping digital records, using compatible software and providing HMRC with quarterly updates.
But what happens if the income that originally brought you within Making Tax Digital has since stopped?
A lot can change between submitting a tax return and the point at which Making Tax Digital obligations begin. A sole trader may close their business, a landlord may sell a rental property or someone may move from self-employment into employment. You may therefore have had qualifying income above £50,000 in 2024–25 but no longer receive that income.
This does not necessarily mean you need to go through the full Making Tax Digital process. However, what you need to do depends on when the income stopped and, importantly, whether you still have any other qualifying income.
Understanding the difference can prevent you from signing up unnecessarily or incorrectly assuming your Making Tax Digital obligations have ended.
At Digital Tax Matters, we have been preparing for Making Tax Digital for Income Tax for some time. Our experienced accountants in Bedford can help you understand whether the rules still apply when your circumstances change and what you need to tell HMRC.
What Happens To Making Tax Digital If You Cease Trading?
Making Tax Digital for Income Tax is being introduced based on qualifying income reported in earlier tax years. This is why ceasing to trade can initially cause some confusion.
HMRC defines qualifying income as your total gross income from self-employment and property before expenses are deducted. If you have more than one qualifying source, they are added together when determining whether you exceed the relevant threshold.
For the first phase, HMRC looked at qualifying income reported on 2024–25 Self Assessment tax returns. Anyone with qualifying income above £50,000 was brought into Making Tax Digital for Income Tax from 6 April 2026, unless an exemption or another exclusion applies.
The threshold falls to more than £30,000 from April 2027, based on 2025–26 qualifying income, and then to more than £20,000 from April 2028, based on qualifying income for 2026–27.
However, HMRC’s decision is initially based on the information it holds. If your circumstances have changed since the relevant tax return was submitted, HMRC may not automatically know that your business has closed or your property income has ended.
This makes it important to tell HMRC when a qualifying income source ceases.
In this article, we’ll cover:
- What Counts As Qualifying Income For Making Tax Digital?
- What Happens If You Stopped Trading Before 6 April 2026?
- What Happens If You Cease Trading After 6 April 2026?
- What Happens To Your Quarterly Updates When You Stop Trading?
- Do You Still Need To Submit A Final Self Assessment Tax Return?
- What If You Still Have Property Or Self-Employment Income?
- How Long Do You Need To Remain In Making Tax Digital?
- What Happens Once Your Income Has Been Below The Threshold For Three Years?
- What If All Your Qualifying Income Stops?
- What Should You Do If Your Circumstances Have Changed?
- How Digital Tax Matters Can Help
What Counts As Qualifying Income For Making Tax Digital?
Before looking at what happens when a business ceases, it helps to understand exactly what HMRC means by qualifying income.
For Making Tax Digital for Income Tax, qualifying income is broadly the gross income you receive from self-employment and property before expenses and tax are deducted.
This is important because the threshold is not based on profit.
For example, if your sole trade generated turnover of £55,000 but you had £25,000 of allowable business expenses, your profit may only have been £30,000. However, it is the £55,000 of gross qualifying income that is relevant when determining whether you fall within Making Tax Digital.
The same principle applies when someone has more than one source.
If you received £28,000 of gross income from self-employment and £25,000 of gross rental income, your total qualifying income would be £53,000. Although neither source individually exceeds £50,000, together they would have brought you above the threshold for April 2026 if those figures appeared on the relevant 2024–25 return.
Not every type of income is included. Employment income through PAYE, dividends, pensions and savings income, for example, do not form part of the qualifying income calculation.
HMRC provides detailed guidance on working out qualifying income, which can be useful if you have several sources of income or your circumstances have changed.
Understanding this distinction becomes particularly important when one income source stops but another continues.
What Happens If You Stopped Trading Before 6 April 2026?
If all of your self-employment and property income ceased before 6 April 2026, you will not need to use Making Tax Digital for Income Tax simply because your 2024–25 tax return showed qualifying income above £50,000.
For example, imagine you operated as a sole trader throughout 2024–25 and reported gross qualifying income of £60,000. You then decided to close the business permanently on 31 January 2026 and moved into employment.
Based solely on the 2024–25 return, HMRC’s records would indicate that you should use Making Tax Digital from 6 April 2026. However, because all your qualifying income stopped before that date, there is no continuing self-employment or property income to report through MTD.
That does not mean you should simply ignore correspondence from HMRC.
If you have not yet been signed up for Making Tax Digital, you should contact HMRC and explain that all your self-employment and property income ceased before 6 April 2026. HMRC can then update its records.
If HMRC has already signed you up, you can check and update your income sources through your HMRC online account and tell HMRC that the relevant self-employment or property income has ceased.
This is an important step because HMRC may otherwise continue to work from the information it already holds and expect you to meet Making Tax Digital requirements.
Ceasing to trade does not remove your responsibility to report income earned before the business closed. You will still need to complete the appropriate Self Assessment tax return covering the final period of trading.
What Happens If You Cease Trading After 6 April 2026?
The position is different if your qualifying income continued beyond 6 April 2026.
If you were required to use Making Tax Digital from that date and your business subsequently ceased, you still have MTD obligations for the period in which the business was active.
Suppose you were self-employed on 6 April 2026 but stopped trading permanently on 20 June 2026. You cannot simply avoid Making Tax Digital because the business only continued for a few months of the tax year.
You need to use Making Tax Digital for Income Tax for the period up to the date your income source ceased. This means keeping the required digital records and submitting the relevant quarterly information through compatible software.
You also need to tell HMRC that the income source has ended. The cessation date should be entered through your HMRC online services account, or through an agent services account where an accountant is acting on your behalf.
The timing matters. HMRC needs to be told by the quarterly update deadline for the period in which the business or property income stopped.
Once the cessation has been recorded and the required information submitted, you will no longer need to provide future quarterly updates for that particular income source.
However, this only applies to the source that has ceased. If another qualifying income source remains, your wider MTD obligations may continue.
What Happens To Your Quarterly Updates When You Stop Trading?
Quarterly updates are one of the biggest changes introduced by Making Tax Digital for Income Tax.
Rather than waiting until the end of the year to report self-employment and property figures, those within MTD must keep digital records and use compatible software to send summaries of their income and expenses to HMRC every three months.
If your business ceases during one of these periods, you need to send a final quarterly update that covers the period up to the date your income stopped.
HMRC’s guidance on adding or ceasing income sources explains what you need to do when a source of self-employment or property income ends.
For example, if your self-employment ended in May 2026, you would still need to send the quarterly update due by 7 August 2026. You would not then need to continue sending updates for that business after the cessation had been correctly recorded.
This is why closing a business should not be treated as an automatic end to your reporting requirements. There may still be one final set of digital records and an update to complete before your obligations for that income source finish.
You should also keep the underlying digital records. Ending your Making Tax Digital obligations does not remove the normal requirement to retain records supporting your tax return.
Do You Still Need To Submit A Final Self Assessment Tax Return?
Yes. Ceasing your qualifying income does not remove the requirement to complete a tax return for the year in which that income stopped.
Your final return needs to include the relevant income and expenses for the period up to the cessation date, together with any other information that needs to be reported.
For someone who stops trading before 6 April 2026, this may mean completing the 2025–26 Self Assessment tax return in the usual way.
For someone who was already required to use Making Tax Digital and then ceased all qualifying income during 2026–27, the ceased income still needs to be included in the 2026–27 tax return using Making Tax Digital for Income Tax software.
There may also be other tax considerations when a sole trade ends. Closing a business can affect how certain expenses, assets, stock or losses are treated, so it is worth reviewing the final accounts carefully rather than seeing the last tax return as a simple administrative formality.
GOV.UK provides further information on what to do when you stop being self-employed, including your responsibilities when closing a business.
What If You Still Have Property Or Self-Employment Income?
Stopping one business does not necessarily mean your Making Tax Digital obligations stop.
If you have another continuing source of qualifying income, you may still need to remain within MTD even where that remaining income is relatively small.
Consider someone who operated as a sole trader and also received rental income. Their combined qualifying income on the 2024–25 return brought them above the £50,000 threshold, meaning they entered Making Tax Digital in April 2026.
They then cease their sole trade but continue receiving £3,000 a year from a rental property.
It might seem logical to assume that because £3,000 is well below the £50,000 threshold, Making Tax Digital would no longer apply. However, the individual still has qualifying property income. They therefore need to continue creating digital records and sending quarterly updates for that income until they meet the conditions for leaving MTD.
The same principle can work in the opposite direction. A landlord may sell the property that originally generated most of their qualifying income but continue operating a small sole trade.
Where only one source ceases, you should tell HMRC about that source and complete any outstanding quarterly updates for it. The continuing business or property income will still need to be dealt with through Making Tax Digital.
This is why it is important to look at your overall position rather than considering each source in isolation.
How Long Do You Need To Remain In Making Tax Digital?
If qualifying income continues but falls below the relevant threshold, the three-year rule becomes important.
Once you are within Making Tax Digital for Income Tax, you generally need three consecutive tax years in which your qualifying income is below the applicable threshold before you can leave on income grounds.
The relevant thresholds have changed as MTD has been phased in.
For example, if you were required to join Making Tax Digital for Income Tax in April 2026, you may be able to opt out after the end of the 2029–30 tax year if your qualifying income is:
- £30,000 or less based on your 2025–26 tax return
- £20,000 or less based on your 2026–27 tax return
- £20,000 or less based on your fourth quarterly update for 2029–30
The important point is that falling below £50,000 once does not immediately end your Making Tax Digital obligations.
For taxpayers with changing income, this is an area where professional advice can be useful. The threshold that originally brought you into MTD may not be the same threshold that applies when considering whether you can leave.
What Happens Once Your Income Has Been Below The Threshold For Three Years?
Once you meet the conditions for leaving Making Tax Digital based on your income, you have a choice.
You can choose to stop using Making Tax Digital for Income Tax and return to the standard Self Assessment process, provided you meet the relevant conditions.
Alternatively, you can choose to continue using Making Tax Digital voluntarily.
Some people may prefer to remain within the system, particularly if they have already adapted their bookkeeping processes and are comfortable maintaining digital records throughout the year.
Others may decide that traditional Self Assessment is more suitable where their remaining qualifying income is low.
The right choice will depend on your circumstances. What matters is making sure you have actually met the requirements before opting out rather than simply stopping quarterly updates because your income has fallen.
What If All Your Qualifying Income Stops?
If all your self-employment and property income stops after you have entered Making Tax Digital, you will need to notify HMRC, complete your final quarterly update and report the ceased income on your tax return for that year.
Once all qualifying income has ceased and the required final reporting is complete, your MTD obligations can end. The three-year rule only applies where qualifying income continues but remains below the relevant threshold.
What Should You Do If Your Circumstances Have Changed?
If your 2024–25 return placed you above the £50,000 threshold but your circumstances have since changed, it is worth checking your position rather than assuming HMRC’s records have automatically caught up.
Start by establishing exactly which sources of self-employment and property income are still active.
If all qualifying sources ended before 6 April 2026, make sure HMRC has been told. If HMRC has already signed you up, check your HMRC online account and update the relevant income information.
If an income source ceased after 6 April 2026, make sure the cessation date is recorded and that all required quarterly updates have been submitted for the period when the source was active.
Where one source has stopped but another remains, check whether you still need to maintain digital records and send quarterly updates for the continuing source.
Finally, remember the tax return. Even when a business or property income source has ended, the income received before it ceased still needs to be reported for the relevant tax year.
Taking these steps now is much easier than discovering later that HMRC was expecting quarterly information you did not realise you needed to provide.
How Digital Tax Matters Can Help
Making Tax Digital for Income Tax represents a significant change for sole traders and landlords, and ceasing to trade can make the rules feel even more complicated.
At Digital Tax Matters, we have been preparing for MTD for Income Tax for some time and can help you understand exactly what applies to your circumstances.
Our experienced accountants in Bedford can help you establish whether you still need to use Making Tax Digital, notify HMRC when an income source has ceased and make sure any outstanding quarterly updates and tax returns are dealt with correctly.
We can also help you set up suitable digital record-keeping processes and compatible accounting software where you do need to remain within MTD.
This can be particularly useful if you have several sources of income. Rather than assuming that closing one business ends your obligations, we can review your wider position and help you understand what needs to continue.
If your circumstances have changed since your last Self Assessment tax return, getting your records updated early can help prevent unnecessary reporting requirements, missed deadlines and confusion later.
Ceasing To Trade Doesn’t Always Mean Your MTD Obligations End Immediately
Making Tax Digital for Income Tax is based on more than what you earn today. Previous tax returns, the date an income source ceased and whether you have any remaining self-employment or property income can all affect what happens next.
If all your qualifying income ceased before 6 April 2026, you should make sure HMRC knows so that you are not expected to use Making Tax Digital unnecessarily.
If you stopped trading after 6 April 2026, you may still need to complete digital records and a final quarterly update for the period in which the business operated. If another source of qualifying income remains, even at a much lower level, your MTD obligations may continue until the relevant conditions for opting out have been met.
The key is not to assume that ceasing one source of income automatically removes you from the system.
If you’re unsure what applies to you, contact Digital Tax Matters today. We can review your circumstances, explain what HMRC requires and help make sure your Making Tax Digital records are handled correctly from start to finish.