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.

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.
  • 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.
  • 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. 

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.

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.

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, 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.

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 many individuals, the complexity lies in how different income streams are combined. The rules for the making tax digital self employed population are particularly important, as even fluctuating or mixed income sources can determine whether MTD applies. HMRC expects continuous digital record-keeping, supported by compatible systems that can handle MTD for income tax reporting without manual adjustments at year-end.

Although making tax digital corporation tax is not yet fully implemented, businesses are already being encouraged to modernise accounting systems early. This reduces disruption later when corporate reporting becomes fully digital under HMRC’s long-term roadmap.

At Cigma Accounting, we work with clients across Fulham Broadway, helping them assess whether they meet qualifying income thresholds and what systems are needed to stay compliant. We also support taxpayers in Brompton Cemetery and West Brompton, where early preparation is increasingly important as HMRC tightens digital reporting expectations in 2026.