MTD Qualifying Income: What Counts and What Does Not

This guide is for self-employedindividuals 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, particularly as HMRC continues to expand its Making Tax Digital services.

An MTD qualifying income check should therefore consider both where your income comes from and the gross amount received from the sources that fall within the rules. This is particularly important where you have more than one trade, rental properties, or a combination of self-employment and property income.

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 coping with the new Making Tax Digital services requirements under HMRC’s digital reporting framework. For a full overview of how the MTD for Income Tax programme is structured, what has changed, and how it fits into HMRC’s wider digital reporting roadmap, read our complete MTD for Income Tax 2025/26 guide

• • 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 or any MTD self assessment obligations where they do not fall within scope.
  • 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. With the April 2026 start date now here, time to prepare is extremely limited. Read our guide on the MTD Income Tax deadline to understand what needs to be done immediately and what happens if you miss the compliance window.
  • 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, even where businesses are otherwise within making tax digital VAT reporting requirements.
  • 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, including potential alignment with future MTD VAT return style digital reporting systems. The government is also exploring ways to bring those earning under £20,000 within the MTD framework at a future date.

MTD eligibility is therefore determined by more than whether you describe yourself as a sole trader or landlord. The relevant qualifying income needs to be identified and compared with the threshold applying to the tax year in which you may be required to enter MTD.

What Is Qualifying Income for MTD?

If you are wondering what is qualifying income for MTD, it generally refers to income arising from:

• Self-employed trading income
• Property rental income

These income sources are combined when assessing whether you meet HMRC’s qualifying income threshold for Making Tax Digital services under MTD for Income Tax. This is particularly relevant when determining future obligations linked to making tax digital self assessment reporting requirements.

For example, an individual does not necessarily need to exceed the MTD qualifying income threshold from one business alone. Where relevant self-employment and property income arise together, the qualifying amounts are considered when establishing whether the taxpayer is within scope.

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 is 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. This distinction matters when carrying out an MTD qualifying income check. Your total personal income may be substantially higher than your qualifying income for MTD purposes if a significant proportion comes from PAYE employment, dividends, savings or pensions.

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. The MTD qualifying income threshold should therefore be applied to the relevant gross income before business or property expenses are deducted. Looking only at taxable profit could produce the wrong conclusion about your MTD eligibility. A practical MTD qualifying income check involves identifying each relevant source of self-employment and property income, excluding income that does not count, and then comparing the qualifying total with the threshold for the relevant phase of MTD. If your income exceeds the relevant threshold, the next step is understanding exactly what MTD requires you to do. Read our dedicated guide on what is required from April 2026 for MTD Income Tax for a full breakdown of digital record-keeping obligations, software requirements, and submission deadlines.

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, which can create compliance issues once the rules take effect. 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. There is also an important distinction between being outside the MTD qualifying income threshold and qualifying for one of the available MTD exemptions. A taxpayer whose qualifying income does not bring them within the relevant mandatory phase is not necessarily “exempt”; they may simply be outside the scope of the requirement for that period. MTD exemptions apply in specific circumstances and should be considered separately from the income test. If you are unsure whether your current systems and records meet what HMRC expects, our practical guide on whether you are ready for Making Tax Digital for Income Tax walks through every key area you need to have in place before your obligations begin.

Making Tax Digital Qualifying Income and How HMRC Determines Who Must Comply in 2026

The shift towards Making Tax Digital (MTD) is not based on business size alone, but on how HMRC defines qualifying income. This includes the total gross income from self-employment and property before expenses are deducted. Once income crosses the threshold, taxpayers are brought into digital reporting requirements rather than the traditional Self Assessment tax return cycle.

For taxpayers with several relevant income streams, MTD qualifying income should be considered across those sources rather than assessing each one separately. This is why establishing the correct income figure is central to determining MTD eligibility and the date from which digital reporting obligations apply. For a complete guide to how Making Tax Digital for Self Assessment works including the quarterly reporting structure, approved software requirements, and the new penalty system read our full guide to Making Tax Digital for Self Assessment.

Case Study: Checking MTD Eligibility Across Multiple Income Sources

Mark approached our Fulham office because he had several sources of income and was unsure whether he fell within Making Tax Digital for Income Tax. He earned £32,000 in gross income from self-employment, received £21,000 from a rental property and also had employment income through PAYE.

Mark initially assumed he was outside the first MTD phase because neither his business nor rental income individually exceeded £50,000. Cigma Accounting reviewed the income sources separately and explained that relevant self-employment and property income must be considered together when carrying out an MTD qualifying income check. His PAYE employment income did not form part of that qualifying total.

With combined qualifying income of £53,000, Mark needed to consider the MTD requirements applying from April 2026. We explained that the assessment is based on relevant gross income rather than taxable profit after expenses, which was important because Mark had previously been looking at the profits reported on his Self Assessment return.

Our team then reviewed his Self Assessment, bookkeeping and personal tax position and helped him prepare his records for digital reporting. We also considered suitable MTD-compatible accounting software so his business and property transactions could be maintained consistently throughout the year.

Mark was left with a clear understanding of which income counted towards the MTD threshold, why his total personal income was not the relevant test and what he needed to do to meet his digital reporting obligations.