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What is qualifying income for MTD for income tax?
Unsure how qualifying income for MTD works? This guide explains the essentials.
Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is a government initiative designed to make tax reporting easier, more accurate and completely digital.
It affects both sole traders and landlords, requiring them to submit four quarterly updates plus one final declaration each year to HMRC via MTD-compatible software.
The first phase of MTD started on 6 April 2026 for those who earned £50,000 or more in 2024-25. Exactly when it impacts you depends on your qualifying income.
Key takeaways
Qualifying income for Making Tax Digital (MTD) is the amount of gross income you earn from self-employment and property
Once your qualifying income exceeds certain thresholds, you need to start using MTD for income tax
You calculate qualifying income before deducting allowable business expenses, tax reliefs or personal allowances
Qualifying income doesn’t include employment income that’s taxed under PAYE, or income from savings interest, pensions or dividends
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What is qualifying income for Making Tax Digital?
Qualifying income is the amount of gross income you earn from all sources of self-employment and/or property before deducting expenses.
It matters because sole traders and landlords need to use MTD for income tax once their qualifying income (not profit) exceeds certain thresholds. These are as follows:
If your qualifying income was more than £50,000 for the 2024-25 tax year, you must use MTD from 6 April 2026
If your qualifying income is more than £30,000 for the 2025-26 tax year, you must use MTD from 6 April 2027
If your qualifying income is more than £20,000 for the 2026-27 tax year, you must use MTD from 6 April 2028
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What counts as qualifying income for MTD?
There are two main sources of qualifying income for MTD. These are:
Self-employment income – This includes all income you receive from working for yourself, including freelance, consultancy or sole-trader earnings
Property rental income – This includes all rental income from both UK and foreign residential or commercial properties. Note that if you co-own a property, only your share of the rental income counts
For example, if you earn £20,000 from self-employment and £12,000 in gross rental income, your qualifying income is £32,000. This means you would need to start using MTD for income tax from 6 April 2027.
You calculate qualifying income before deducting allowable business expenses, tax reliefs or personal allowances. So, it doesn’t matter that your profit is lower once you’ve deducted these.
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What doesn’t count as qualifying income for MTD?
Qualifying income doesn’t include any of the following:
Employment income that’s taxed under Pay As You Earn (PAYE) – for example, a salary from an employer
Any dividends you receive, even if they are from your own company
Partnership income (in most cases)
Savings interest and pension income
Capital gains from the sale of properties
Qualifying care receipts (payments received for providing specific types of care under approved schemes)
As an example, if you earn £28,000 from your job under PAYE, £3,000 in savings interest and £2,500 in dividends, none of this contributes to your MTD qualifying income. This income doesn’t count because it’s not self-employment or property income.
However, if you earn £28,000 from your job under PAYE, but also £35,000 from self-employment, your qualifying income for MTD is £35,000, and you would need to use MTD for income tax from 6 April 2027.
How to calculate qualifying income for MTD
Here’s a clear, step-by-step approach to calculating qualifying income for MTD for income tax:
1. Identify income sources
This includes self-employment income plus property income. Exclude PAYE salary, dividends, pensions and interest, as well as partnership income (in most cases)
2. Use gross income
Make sure you haven’t deducted expenses, tax reliefs or allowances to reduce your figures
3. Adjust for property co-ownership
If you own a property with someone else, only include your share of the income.
4. Add up your total qualifying income
For example, you might have £30,000 from self-employment and £30,000 from property income in 2024-25, giving you a total of £60,000.
5. Compare with thresholds
In this example, your qualifying income was £60,000, which means you are over the £50,000 threshold for the 2024-25 tax year and should've started MTD for income tax from April 2026.
The GOV.UK website has more information on what does and does not count as qualifying income for MTD for income tax if you need further support.
In conclusion
Qualifying income decides whether you need to follow MTD for Income Tax, so it’s important to understand what HMRC counts.
Focus on your total self-employed and property income before expenses, and do not include PAYE income, pensions, dividends or savings interest.
If your income sits close to the threshold, keep clear records and check your position each year so you know when MTD rules may apply.
MTD qualifying income FAQs
How much can you earn without declaring yourself self-employed?
Thanks to the trading allowance, you can earn up to £1,000 each year from self-employment without registering for self-assessment or submitting a tax return.
If you earn more than £1,000, you must register as self-employed with HMRC and report your income.
Do expenses affect my qualifying income for MTD?
No, you calculate qualifying income for MTD before deducting any expenses, allowances or reliefs. This means that even if your actual profit is low, your qualifying income could still put you over the threshold for MTD. For example, if you earn £52,000 from freelancing but you spend £12,000 on business expenses, your qualifying income is still £52,000, and you must use MTD from April 2026.
What if I co-own a property?
Only your share of the property income counts towards qualifying income, but remember that expenses don’t reduce this amount. So, if your portion of the income is more than £50,000, you still need to use MTD for income tax from April 2026.
What happens if I don’t comply?
If you fail to submit MTD updates or final accounts digitally once you’re required to, HMRC may issue you with a penalty.
What if I have both self-employed and property income?
HMRC looks at your combined income from self-employment and property before expenses. For example, if you earn £28,000 from self-employment and £24,000 in rental income, your qualifying income is £52,000. That means you may need to follow MTD rules from the relevant start date.
Which tax year does HMRC use to check my qualifying income?
HMRC checks your Self Assessment tax return each year to see whether your qualifying income is above the relevant threshold. If it is, HMRC should write to you before the start of the tax year when you need to start following MTD.
Does overseas property income count?
Yes, overseas property income can count towards your qualifying income if you report it through Self Assessment. This matters if you have UK or overseas property income, as well as self-employed income.
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About Rachel Wait
Rachel has spent the majority of her career writing about personal finance for leading price comparison sites and the national press, including for the Mail on Sunday, The Observer, The Spectator, the Evening Standard, Forbes UK and The Sun.