"They're well under the threshold, so they're not in MTD yet" is one of the most common sentences said about a small client during a Making Tax Digital review. It's a reasonable thing to say. It's also only reliably true about one of the two Making Tax Digital regimes — and the one it's usually said about, MTD for VAT, is the one where it's been wrong since 2022.
Firms that triage "who needs to go digital" using a single income figure are applying Income Tax logic to a VAT question. The two mandates have different trigger conditions, different histories, and different clients slipping through the gap between them.
MTD for VAT Has Never Had a Size Exemption Since 2022
Making Tax Digital for VAT started narrower than it is now. From April 2019, it applied only to VAT-registered businesses with taxable turnover above the then-£85,000 VAT registration threshold. Below that line, a business could be VAT-registered and still legally file the old way.
That carve-out closed in April 2022. From 1 April 2022, every VAT-registered business must keep digital records and file VAT returns through MTD-compatible software, regardless of turnover, per NI Business Info's government-backed guidance. There has been no turnover-based exemption from MTD for VAT for over four years. A VAT-registered business with £15,000 of annual turnover has exactly the same MTD for VAT obligation as one with £15 million.
This matters because "VAT-registered" and "VAT threshold" are not the same gate. The current compulsory VAT registration threshold is £90,000 of taxable turnover in any rolling 12-month period, last raised in April 2024. Below that figure, registration is voluntary — and a genuinely common reason small businesses register voluntarily is to reclaim input VAT on equipment, software, or professional fees, or because their main clients are VAT-registered businesses who find a non-VAT-registered supplier slightly less credible. None of those reasons care about the £90,000 line, and neither does MTD. The moment a business registers for VAT — compulsorily or voluntarily — the digital record-keeping and digital-link filing requirements apply from day one. There's no grace period tied to turnover.
The exemptions that do exist are narrow and have nothing to do with size: HMRC will consider exemption where a business can show it's genuinely unable to use software for reasons such as age, disability, location, or religious belief that conflicts with the use of electronic communications. "We're too small to bother with this yet" has never been one of the accepted grounds.
MTD for Income Tax Is the Opposite: a Phased, Income-Based Threshold
This is where the confusion comes from, because MTD for Income Tax Self Assessment works on exactly the logic firms mistakenly apply to VAT: a turnover threshold, phased in over several years.
Sole traders and landlords with qualifying trading and property income above £50,000 were brought into MTD for Income Tax from April 2026 — a threshold confirmed at Autumn Budget 2024. The threshold drops to £30,000 from April 2027. A further reduction to £20,000 takes effect from 6 April 2028, a change announced at Spring Statement 2025 and implemented through the Income Tax (Digital Obligations) Regulations 2026, bringing an estimated further 970,000 people into scope. Below £20,000 in qualifying income, a sole trader or landlord currently sits outside MTD for Income Tax entirely, with no confirmed date for that to change. HMRC's published exemption grounds here largely mirror the VAT ones: digital exclusion for reasons like age, disability or location, and specific religious objections.
So for Income Tax, "they're under the threshold" is a correct and current answer, for now, right up until the next phase takes effect under their specific qualifying-income figure.
The Client Firms Miss: Small, Voluntarily VAT-Registered, and Already Non-Compliant
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Put the two mandates side by side and the gap becomes obvious. Picture a sole trader consultant with £35,000 a year in qualifying income. Under MTD for Income Tax, nothing is required of them yet: they're below the £50,000 threshold live now, and will stay outside scope until the £30,000 threshold lands in April 2027. A firm reviewing this client's file and stopping at the income figure would, correctly, conclude there's no MTD for Income Tax action needed yet.
But if that same consultant voluntarily registered for VAT, say, three years ago, to reclaim VAT on a laptop and a software subscription and because most of their clients are VAT-registered businesses, they have been required to keep digital VAT records and file through compatible software since the day they registered, or since April 2022 if they registered earlier than that. If they're still filing by logging into HMRC's VAT portal and typing in figures from a spreadsheet, that isn't a looming deadline. It's a compliance gap that has existed, potentially for years, under a mandate the firm assumed didn't apply because the income number looked small.
This is a narrow slice of any client base, but it's exactly the slice that a single-threshold mental model is built to miss: small enough to look exempt, VAT-registered for reasons that have nothing to do with turnover, and quietly carrying an obligation nobody re-checked after the registration paperwork was filed.
A Cleaner Way to Screen: Two Questions, Not One
The fix is sequencing, not more research. For each client, the question that actually determines MTD for VAT exposure is simply: are they VAT-registered, for any reason? If yes, MTD for VAT already applies, full stop, independent of turnover. Only after that question is answered does the income-threshold question for MTD for Income Tax become relevant, and only for sole traders and landlords, scored against whichever phase threshold is currently live for the tax year in question.
Running client files through VAT-registration status first, rather than reaching for an income or turnover figure as the first filter, catches the voluntarily-registered small clients that an income-first screen waves through. It's a small sequencing change, but it's the difference between proactively fixing a gap and discovering it when HMRC does.
Where the Workspace Fits
None of this is solved by software alone — a firm still has to make the correct call about who's in scope for which mandate, and get the client onto genuinely MTD-compatible bookkeeping software where needed. But running that kind of client-by-client audit, and then staying on top of who's supplied what records and when, is exactly the kind of exercise that's manageable with a client list in one structured workspace and considerably harder when VAT registration details, engagement letters, and client correspondence are scattered across inboxes and whoever happened to onboard that client three years ago.
A centralized, branded client workspace won't file a VAT return or flag a threshold change on its own. What it does is give a firm one place to see, per client, their registration status, the documents already collected, and the conversation history that explains why a decision was made — which is what actually makes a "let's re-check everyone's MTD status" exercise finishable instead of aspirational. If that kind of client-by-client clarity would make your own MTD review easier to run, explore the Digital Workspace or start using Osuria to see how it fits alongside the compliance work you already have to do.