MTD Qualifying Income: What Counts and What Does Not

This guide is for self-employed individuals and landlords who are trying to understand what HMRC means by qualifying income for Making Tax Digital (MTD) for Income Tax.

Whether MTD applies to you depends on the type and level of income you receive. Understanding what counts as qualifying income and what does not is essential to avoid incorrect assumptions.

Who Must Comply with MTD for Income Tax and When It Applies

• Making Tax Digital for Income Tax (MTD for IT) will become mandatory in phases from April 2026. If you are self-employed or a landlord and have over £50,000 in qualifying income you need to start preparing to submit quarterly updates, keeping digital records and cope with a new penalty system.
• Your qualifying income is the total income you receive in a tax year from self-employment and property. Other income, such as from employment (PAYE), partnerships or dividends (including from your own company), do not count towards your qualifying income.
• HMRC will calculate your qualifying income based on the self-assessment tax return you submitted in the previous year. For example, to assess your income for the 2026-2027 tax year, they will use the return you submit for the 2024-2025 tax year, which is due to be submitted by 31 January 2026. If your qualifying income is over £50,000, HMRC will inform you when you need to start using MTD for IT.
• Qualifying income includes your share of income from jointly owned property, certain trusts, VAT-registered businesses and disguised investment management fees. It does not include business partnership income, transition profits or qualifying care relief payments.
• Initially, MTD for IT will only apply to self-employed individuals and landlords with an annual qualifying income exceeding £50,000. From 6 April 2027, the rules will extend to those with a qualifying income between £30,000 and £50,000. From April 2028, sole traders and landlords with qualifying income over £20,000 will need to follow MTD rules. The government is also exploring ways to bring those earning under £20,000 within the MTD framework at a future date.

What Is Qualifying Income for MTD?

Qualifying income for MTD generally refers to income that arises from:

• Self-employed trading income
• Property rental income 

These income sources are combined when assessing whether you meet HMRC’s qualifying income threshold for MTD for Income Tax.

Income That Does Not Count as Qualifying Income

Not all income you receive is included when assessing MTD qualifying income. Common examples of income that do not count include:

• Employment income taxed through PAYE
• Dividend income
• Savings and interest income
• Pension income

These types of income may still need to be reported on your Self Assessment tax return, but they are not included when determining whether you fall within MTD for Income Tax.

The MTD Qualifying Income Threshold

MTD for Income Tax is being introduced in stages. Based on current rules:

• From April 2026, MTD is expected to apply where qualifying income exceeds £50,000
• From April 2027, the threshold is expected to reduce to £30,000

Qualifying income is assessed by looking at your total self-employed and property income, not your profit.

Why Getting This Wrong Can Cause Problems

Misunderstanding what counts as qualifying income can lead to incorrect assumptions about whether MTD applies to you.

Taxpayers who wrongly assume they are outside MTD may fail to prepare for digital record-keeping and reporting requirements, increasing the risk of compliance issues once the rules apply.

HMRC Guidance on Qualifying Income

HMRC’s official guidance on who needs to use Making Tax Digital for Income Tax, including how qualifying income is assessed, is available on
GOV.UK.

Does Your Income Count as Qualifying Income?

Whether your income counts as qualifying income will depend on both its source and overall level. For individuals based in Fulham Broadway and nearby areas such as Parsons Green and Munster Village, a short review with CIGMA Accounting can help confirm whether your income brings you within the scope of MTD for Income Tax and what that means in practice.