MTD for Income Tax: Qualifying Income Explained
A complete guide to understanding if you fall under the mandatory threshold
From April 2026, Making Tax Digital for Income Tax becomes mandatory for many self-employed individuals and landlords[reference:0]. But whether you fall under this requirement depends on one key concept: qualifying income. This guide explains exactly what counts as qualifying income, which income sources are excluded, how the phased thresholds work, and how to calculate whether you need to comply.
What is Qualifying Income?
Qualifying income is the total gross income you receive in a tax year from self-employment and property before deducting any expenses, allowances, or reliefs[reference:1][reference:2]. It’s your turnover or rental income, not your profit.
HMRC uses this figure – not your net profit – to determine whether you fall into the mandatory MTD thresholds[reference:3]. This is a critical distinction that many people misunderstand.
You could have a relatively modest net profit but still exceed the threshold on gross income. For example, a business with £60,000 turnover and £40,000 expenses has a net profit of only £20,000 – but the qualifying income is £60,000, so MTD applies.
Phased Thresholds: When Do You Need to Comply?
MTD for Income Tax is being rolled out in stages based on your qualifying income from previous tax years. The lower your income, the later your mandatory start date[reference:4].
| Qualifying Income Threshold | Based on Tax Year | Mandatory From | First Quarterly Update Due |
|---|---|---|---|
| Over £50,000 | 2024/25[reference:5] | 6 April 2026[reference:6] | 7 August 2026 |
| Over £30,000 | 2025/26[reference:7] | 6 April 2027[reference:8] | 7 August 2027 |
| Over £20,000 | 2026/27[reference:9] | 6 April 2028[reference:10] | 7 August 2028 |
If you have income from both self-employment and property, these are combined to calculate your qualifying income[reference:11][reference:12]. For example, a self-employed electrician earning £35,000 with £20,000 in rental income would have combined qualifying income of £55,000 – placing them in the first wave from April 2026[reference:13].
What Counts as Qualifying Income?
| Income Source | Counts Toward Qualifying Income? | Notes |
|---|---|---|
| Self-employment income (sole trader) | ✅ Yes[reference:14][reference:15] | Gross turnover from your sole trade businesses |
| UK property income (rental) | ✅ Yes[reference:16][reference:17] | Gross rental income before expenses |
| Foreign property income | ✅ Yes[reference:18] | Gross income from overseas property |
| Income from joint property | ✅ Yes (your share only)[reference:19] | Your percentage share of the gross income |
| Some trust income | ✅ Yes[reference:20] | .
What Does NOT Count as Qualifying Income?
Many other income sources, even though they form part of your overall tax calculation, do NOT count toward the MTD thresholds[reference:21].
| Income Source | Counts Toward Qualifying Income? | Notes |
|---|---|---|
| Employment income (PAYE) | ❌ No[reference:22][reference:23] | Salary from a regular job taxed through PAYE |
| Partnership income | ❌ No[reference:24] | .|
| Dividends (including from your own company) | ❌ No[reference:25][reference:26] | .|
| Savings and investment income | ❌ No[reference:27][reference:28] | Bank interest, investment returns |
| Pension income | ❌ No[reference:29] | .|
| Trading allowance | ❌ No – this is a deduction, not income | .
A self-employed builder earns £35,000 from construction work and £15,000 from employment income (working evenings at a warehouse).
- Qualifying income calculation: £35,000 (self-employment) + £0 (employment not included) = £35,000
- Result: Below £50,000, so MTD does NOT apply from April 2026 (but will from April 2027)[reference:30]
Even though total income exceeds £50,000, the employment income doesn’t count toward the qualifying income threshold for MTD purposes[reference:31].
How to Calculate Your Qualifying Income
Step-by-Step Method
1. Identify Sources
List all income from self-employment and property[reference:32]
2. Use Gross Figures
Take turnover or rental income before expenses[reference:33]
3. Add Together
Combine all qualifying income sources[reference:34]
4. Compare with Threshold
Check which tax year and threshold apply
Worked Examples
Example 1: Sole Trader Only
A freelance graphic designer has annual turnover of £45,000.
- Qualifying income: £45,000
- April 2026 threshold: £50,000 → Not mandatory yet
- April 2027 threshold: £30,000 → Mandatory from April 2027[reference:35]
Example 2: Mixed Self-Employment + Property
A plumber earns £40,000 from plumbing work and receives £15,000 rental income from a buy-to-let property.
- Qualifying income: £40,000 + £15,000 = £55,000
- April 2026 threshold: £50,000 → Mandatory from April 2026[reference:36]
Example 3: Sole Trader with Employment Income
A builder earns £45,000 from building work and £15,000 from a part-time PAYE job.
- Qualifying income: £45,000 (PAYE excluded)[reference:37]
- April 2026 threshold: £50,000 → Below threshold
- Conclusion: Not required to comply with MTD from April 2026
Even though total income exceeds £50,000, the MTD qualifying test only looks at self-employment and property income.
Example 4: Multiple Sole Trader Businesses
A self-employed tradesperson runs both a building business (£30,000 turnover) and a gardening business (£25,000 turnover).
- Qualifying income: £30,000 + £25,000 = £55,000[reference:38]
- April 2026 threshold: £50,000 → Mandatory from April 2026
You must sign up for each income source separately[reference:39]. HMRC treats each sole trade as its own self-employment source, so you need separate MTD records and software connections for each business you run[reference:40].
Example 5: Income Near Threshold
A landlord with £48,000 gross rental income in 2024/25.
- Qualifying income: £48,000
- April 2026 threshold: £50,000 → Not mandatory yet
- However, if income increases in 2025/26, check the lower £30,000 threshold for April 2027
Even if not mandatory, you can voluntarily register for MTD to get familiar with the system before it becomes compulsory for you[reference:41].
Annualising Income for New Businesses
If you started your business partway through a tax year, HMRC may assess your income on an annualised basis. For example, if you began trading in July 2025 and earned £8,000 by April 2026, HMRC could multiply that figure to estimate your annual income[reference:42].
A self-employed consultant started trading in October 2025 and earned £6,000 between October and April 2026 (6 months).
- Annualised qualifying income: £6,000 × 2 = £12,000
- Well below the £50,000 threshold → no mandatory MTD for 2026
- Monitor income for 2025/26 – if it exceeds thresholds, MTD may apply later
Special Cases: What Else Counts?
- VAT-registered businesses – still count gross turnover[reference:43]
- Disguised investment management fees – where relevant[reference:44]
- Your share of jointly owned property income[reference:45]
- Income from certain trusts[reference:46]
Income from employment (PAYE), dividends, savings interest and pensions do NOT count towards the MTD qualifying income thresholds – although they are still included later in your final tax declaration[reference:47].
Determining Your Mandatory Start Date
Step 1
Check your 2024/25 qualifying income[reference:48]
Step 2
If over £50,000 → mandatory from April 2026
Step 3
If not, check 2025/26 income for £30,000 threshold[reference:49]
Step 4
If not, check 2026/27 income for £20,000 threshold[reference:50][reference:51]
What If You’re Below the Threshold?
If your qualifying income is below the relevant threshold for your tax year, you are not required to comply with MTD at this time. However, you have the option to join voluntarily[reference:52][reference:53].
- Get comfortable with the system before it becomes mandatory for you[reference:54]
- Access HMRC’s dedicated MTD Customer Support Team for help and guidance
- No late-submission penalties for quarterly updates while you’re volunteering (normal annual filing and payment deadlines still apply)[reference:55]
- Better financial insight through real-time digital records[reference:56]
- One less transition to worry about when your income grows and eventually crosses the threshold[reference:57]
Need Help Determining Your Qualifying Income?
Understanding whether you need to comply with MTD for Income Tax starts with accurately calculating your qualifying income. Our team can help you assess your position, plan for the relevant deadlines, and decide whether voluntary registration makes sense for your situation.
Book Your MTD Eligibility AssessmentFrequently Asked Questions
? What tax year is used to determine the £50,000 threshold?
HMRC uses your 2024/25 tax return to assess whether you exceed the £50,000 qualifying income threshold for mandatory MTD from April 2026[reference:58]. If your income in 2024/25 is above £50,000, you need to sign up by 6 April 2026[reference:59].
? I have both self-employment and property income – how is this assessed?
The two sources are added together to calculate your qualifying income for threshold purposes[reference:60]. A common mistake is to look at each source separately – but it’s the combined total that matters[reference:61].
? I run multiple limited companies. Does that count toward my qualifying income?
No. Income from limited companies (including your own) does not count toward qualifying income for MTD purposes[reference:62]. MTD for Income Tax applies only to self-employment and property income – Corporation Tax for limited companies is a separate regime.
? What if my income fluctuates year to year?
The threshold is assessed annually based on your most recent tax return. If your qualifying income exceeds the threshold in any relevant tax year, you become subject to MTD from the corresponding April start date. It’s not a one-time test – you need to reassess each year.
? I earn over £50,000 from self-employment but have high expenses. Am I exempt?
No. The threshold is based on gross income (turnover), not net profit[reference:63]. Even if your taxable profit is low, you still need to comply with MTD if your gross turnover exceeds the threshold.
? How do I know if HMRC has counted my qualifying income correctly?
Review the income figure on your 2024/25, 2025/26 and 2026/27 tax returns. HMRC’s calculation of your qualifying income will be based on the figures you’ve submitted. If you’re unsure, we can help you check your position.
? Can I voluntarily register for MTD if I’m below the threshold?
Yes, absolutely. HMRC welcomes voluntary registration from those with qualifying income below the thresholds. This allows you to familiarise yourself with the system before it becomes mandatory for you[reference:64][reference:65]. You can sign up via GOV.UK[reference:66].
HMRC looks at the total gross income from all your self-employment and property sources combined when determining if you exceed the qualifying income threshold. Don’t make the mistake of considering each income source in isolation[reference:67].
Unsure About Your Qualifying Income?
Our team can help you calculate your qualifying income, determine your mandatory start date, and plan your MTD compliance strategy – whether that means registering now or preparing for future years.
Book Your Qualifying Income ReviewReferences
1. Azets. (2026). Qualifying income for MTD for Income Tax explained. Available at: https://www.azets.com/uk/insights/qualifying-income-mtd-for-income-tax-explained/ []
2. Bishop Fleming. (2025). Making Tax Digital to change how landlords and sole traders record their income. Available at: https://www.bishopfleming.co.uk/insights/making-tax-digital-change-how-landlords-and-sole-traders-record-their-income []
3. MHA. (2026). Making Tax Digital – will the new rules apply to you? Available at: https://www.mha.co.uk/insights/making-tax-digital-will-the-new-rules-apply-to-you []
4. Perrys Accountants. (2025). Making Tax Digital (MTD) – Your Complete Guide (from the Experts). Available at: https://perrysaccountants.co.uk/guides/making-tax-digital/ []
5. Whitings LLP. (2025). MTD for IT Qualifying Income: What You Need to Know. Available at: https://whitingsllp.co.uk/mtd-for-it-qualifying-income-what-you-need-to-know/ []
6. ETCTax. (2025). Making Tax Digital for Self Assessment. Available at: https://etctax.co.uk/making-tax-digital-self-assessment/ []
