What is qualifying income?

HMRC doesn’t look at every single source of income when determining which individuals are in scope of MTD for Income Tax. Instead, HMRC looks at the total (gross) income you receive from self-employment and property. If you have multiple businesses or properties, or both business income and property income, these amounts are added together to see if you meet the £50,000 threshold.

As an example, say you have £15,000 of rental income and £40,000 of self-employment income (both amounts are before expenses). This would mean you have a total qualifying income of £55,000.HMRC will look at the figures reported in a taxpayer’s 2024/25 tax return to determine whether the qualifying income threshold is met to start MTD for Income Tax from April 2026.

What’s not included?

All other sources of income reported through self-assessment are not considered qualifying income for MTD for Income Tax purposes. This includes income from:

• employment (PAYE)
• your share of profit from a partnership as an individual partner
• dividends (including those from your own company)
• pensions (state and private)

This means if you had £40,000 of employment income, and £15,000 of rental income, you would not be within scope of MTD for Income Tax, because your qualifying income would only be £15,000.

What if I start a business during the tax year?

If you become a sole trader part way through a tax year, HMRC will annualise your qualifying income if it has the relevant information. For example, if you report six months of self-employment income in your tax return, HMRC will double that amount to calculate your qualifying income.

If you receive income from property, you will be responsible for annualising your income to work out if it meets the qualifying threshold. For jointly owned property, remember only your share of property income counts as qualifying income.

Are there any other exemptions?

Yes—quite a few. Anyone who claims averaging relief, qualifying care relief, reports income from trusts or estates in the SA107 supplementary page, or includes the SA109 supplementary page in their tax return will not need to use MTD for Income Tax until 2027/28 at the earliest. Exemptions are also available for other select groups of taxpayers, including those who are digitally excluded. For further details, see HMRC guidance.

My qualifying income is above the threshold – what now?

Those in scope of MTD for Income Tax are required to maintain digital records and update HMRC each quarter using compatible software, with separate quarterly updates required for each trade or property business. A year-end declaration will also need to be submitted by the usual 31 January self-assessment deadline.

What if my qualifying income is below the threshold?

The mandation threshold for MTD for Income Tax is set to lower over the coming years. Taxpayers with qualifying income above £30,000 will be required to join MTD for Income Tax from April 2027, with the threshold further dropping to £20,000 from April 2028. This means that, even if you aren’t in scope of MTD for 2026/27, you may still end up joining at a later date.

Are you ready for Making Tax Digital for Income Tax?

Still have questions about what counts as qualifying income, or want to know more about when you might be mandated into Making Tax Digital? Come and speak to one of our team, we’d be happy to help.