What counts as qualifying income for Making Tax Digital?

What counts as qualifying income for Making Tax Digital for Income Tax?

Qualifying income is the figure HMRC uses to decide whether you are required to use Making Tax Digital for Income Tax (MTD for IT). It is your gross income — the total amounts coming in before you deduct any expenses or allowances — from two specific sources: self-employment (sole trader) income and UK property income. If those two streams combined exceed the relevant threshold, you must comply with MTD for IT.

Since 6 April 2026, MTD for IT has been mandatory for sole traders and landlords whose qualifying income exceeded £50,000 in an earlier tax year. HMRC is now actively enforcing this and has begun automatically enrolling people who met the threshold but had not signed up voluntarily. If you are in this group and have not yet enrolled, you need to act immediately — the next quarterly update deadline is 7 November 2026, covering the period 6 July to 5 October 2026.

The two income streams that count

HMRC is very specific about which income counts. Only these two categories form your qualifying income total:

• Gross trading income from self-employment. This is the turnover of your sole trader business — every pound your business takes in from customers before you subtract rent, materials, accountancy fees, mileage, or any other allowable expense. If you run more than one self-employed business, the gross income from all of them is added together.
• Gross property income. This is the rent and any other payments you receive from letting UK land or property before deducting mortgage interest, letting agent fees, insurance, repairs, or any other property expenses. Furnished holiday lettings income was historically treated as trading income for some purposes, but for MTD qualification it is included in this same assessment of gross receipts from property.

Note the word gross throughout. Your profit is irrelevant to the threshold question. A landlord who receives £55,000 in rent but has £30,000 in allowable costs — leaving a taxable profit of £25,000 — still has qualifying income of £55,000 and is within MTD for IT from April 2026.

What does NOT count as qualifying income

Several common income types are deliberately excluded from the qualifying income calculation. Adding them in by mistake could lead you to believe you are caught by MTD when you are not, or cause unnecessary panic.

• Employment income (PAYE wages and salary). If you are both employed and self-employed, your salary, wages, or any other PAYE income from an employer does not count toward the threshold.
• Dividends. Income from shares, whether from your own limited company or from investments, is not qualifying income. MTD for IT does not apply to limited companies at all — only to individuals taxed under Income Tax on trading or property income.
• Savings interest. Bank interest, bond interest, and similar savings income are excluded.
• Pension income. State pension, private pension, or annuity income does not count.
• Capital gains. Proceeds from selling assets are not income for this purpose.
• Other miscellaneous income such as royalties taxed under a different Income Tax category, or casual one-off receipts that fall outside the definition of a trade.

This matters enormously in practice. A part-time freelancer earning £18,000 gross from self-employment who also earns £45,000 in a PAYE job has qualifying income of only £18,000 — comfortably below every current threshold.

The thresholds that apply from April 2026 onwards

The thresholds are phased, with more taxpayers being brought in over successive tax years. The table below shows the schedule as it stands today, 19 September 2026.

The first tier — £50,000 — is already in force. If your qualifying income for 2024–25 (or an earlier relevant year) was above £50,000, you should already be enrolled and submitting quarterly updates. The £30,000 and £20,000 thresholds are legislated but not yet in force; they are included here so you can plan ahead.

Which tax year's income is used to set the threshold?

This is one of the most commonly misunderstood aspects of MTD for IT. The threshold is not checked against your current year's income as you go. Instead, HMRC looks at your most recent filed tax return at the point of assessment.

In practice, for the 2026–27 tax year the relevant figure is typically your 2024–25 self-assessment return — the most recently submitted return before the April 2026 start date. If the qualifying income shown on that return exceeded £50,000, you were required to join MTD for IT from 6 April 2026.

Going forward, HMRC will reassess your position each year. If your qualifying income drops below the threshold in a later year, you may be able to leave the regime — but you must apply to HMRC and cannot simply stop. Equally, if your income rises above a lower threshold in a future year, you will be pulled into the regime at the next staging date.

Worked example: are you caught?

Let's take a concrete example to show how the calculation works in practice.

Sara is a freelance graphic designer and also lets out a flat. In the 2024–25 tax year her financial position looked like this:

• Gross freelance design income: £38,500
• Gross rental income from the flat: £14,400
• Salary from a part-time employed role: £12,000
• Savings interest: £320

To find Sara's qualifying income, we add only the self-employment and property figures:

£38,500 (self-employment) + £14,400 (property) = £52,900 qualifying income

The PAYE salary of £12,000 and the savings interest of £320 are both excluded. Sara's qualifying income of £52,900 exceeds the £50,000 threshold, so she was required to join MTD for IT from 6 April 2026. Her actual taxable profit is lower — after expenses she might have a combined profit of £35,000 — but that is irrelevant to the threshold question. It is the gross receipts that count.

Now consider her colleague Marcus, also a freelancer:

• Gross freelance income: £47,000
• Dividends from shares: £6,000
• No property income

Marcus's qualifying income is only £47,000. The £6,000 in dividends does not count. He is below the current £50,000 threshold and is not yet required to use MTD for IT — though he should watch his position carefully ahead of the £30,000 threshold taking effect in April 2027.

Multiple self-employed businesses: how they combine

If you run more than one trade as a sole trader — for example, you are both a freelance writer and a music teacher — the gross income from both businesses is added together for the qualifying income test. You do not get a separate threshold for each business. This catches some people by surprise: two modest businesses that would each fall below the threshold individually can tip you over it when combined.

Similarly, income from multiple properties is all pooled together. Whether you own one flat or ten, it is the total gross rental receipts that count.

Exemptions and cases where qualifying income doesn't lead to MTD enrolment

Even if your qualifying income exceeds the threshold, there are circumstances in which HMRC may grant an exemption from the digital requirements. These are relatively narrow and include:

• Age and digital exclusion. Taxpayers who are unable to use digital tools for reasons of age, disability, or a lack of reliable internet access in their location may apply for an exemption.
• Religious grounds. Members of certain religious communities whose beliefs are incompatible with the use of electronic communications can apply.
• Insolvency. Taxpayers who are subject to certain insolvency proceedings may be temporarily excluded.

These exemptions do not apply automatically. You must contact HMRC to apply, and you must continue to meet your obligations through the traditional self-assessment route while your application is considered.

It is also worth noting that partnerships and limited companies are outside the scope of MTD for Income Tax entirely. MTD for IT applies only to individuals — sole traders and landlords — who are assessed under Income Tax, not Corporation Tax. Limited company directors who pay themselves a salary and dividends are not within the MTD for IT regime (though a separate MTD for Corporation Tax programme is expected in future years).

What to do if you are over the threshold

If your qualifying income is above £50,000 and you are not yet enrolled, you should take the following steps as soon as possible:

1. Choose compatible software. You must use HMRC-recognised MTD-compatible software to keep digital records and submit quarterly updates. HMRC maintains a list of approved software providers on its website. Free-tier options exist for straightforward cases.
2. Sign up for MTD for IT through your Government Gateway account. If HMRC has already auto-enrolled you, check your account — you may already be registered without realising it.
3. Start keeping digital records. Every transaction in your business and property accounts must be recorded digitally from the start of the tax year you join. Paper records alone are no longer sufficient.
4. Submit your quarterly updates on time. The four quarterly deadlines each year are 7 August, 7 November, 7 February, and 7 May. The next deadline is 7 November 2026, covering 6 July to 5 October 2026. Missing a deadline can result in penalty points under the new points-based penalty system.
5. Submit an end-of-period statement and a final declaration. At the end of the tax year, after your four quarterly updates, you finalise each income source with an end-of-period statement and then submit a single final declaration (which replaces the old self-assessment tax return) to confirm your overall tax position.

If you are unsure whether your qualifying income puts you over the threshold, the starting point is your 2024–25 self-assessment return. Add up all the gross income figures from the self-employment and property pages — not your profit boxes, but your turnover and gross receipts boxes. If the total is above £50,000, you are in scope now.

Next step: Check which MTD deadlines apply to you.