If Making Tax Digital is on your radar, working out your qualifying income is one of the quickest ways to find out whether the new rules apply to you.
To work out your qualifying income for Making Tax Digital (MTD) for Income Tax, add together your annualised self-employment income and any property income for the tax year before deducting any expenses. If the figure meets the MTD income threshold, you’ll need to comply.
At Treetops, we’ve been helping self-employed individuals and landlords navigate tax changes for years, and qualifying income is one area that causes confusion. In this guide, we’ll explain how HMRC calculates qualifying income, what’s included, and how to work out whether MTD is likely to apply to you.
For MTD advice tailored to your situation, contact Treetops today.
What counts towards the Making Tax Digital threshold?
The income that counts towards the MTD threshold is known as your “qualifying income”. It’s the total annualised gross income you receive from self-employment and property in a tax year. HMRC uses this figure to decide whether you need to join Making Tax Digital for Income Tax (MTD for IT).
The types of income that count towards the MTD threshold include:
- Self-employment income
- UK property income
- Foreign property income (for UK residents)
When calculating qualifying income, HMRC uses your total income before expenses are deducted. So if you’re a landlord, for example, the figure that matters is your gross rental income and lease premiums, not the profit left after mortgage interest, repairs, or other allowable expenses. And if you’re self-employed, it includes your total sales, fees, commissions, or freelance income before deducting any business expenses.
HMRC may require part-year qualifying income to be annualised for MTD threshold purposes.
The date you started your business also affects when MTD applies to you.
If you were already trading before 6 April 2025, the earliest digital start date is 6 April 2026. But you’ll only be required to join MTD if your qualifying income exceeds the relevant mandatory thresholds.
For example, imagine you were self-employed for the full 2024/25 tax year and generated £25,000 in gross business income. Then midway through the tax year you also started a new property business and received £15,000 in rental income. HMRC will annualise the part-year property income to determine where you stand with the MTD threshold.
In this case, the £15,000 rental income would be treated as £30,000 on an annual basis, giving you total qualifying income of £55,000 (£25,000 self-employment income plus £30,000 annualised property income). As a result, you would fall within the scope of MTD and be required to comply with quarterly reporting requirements from April 2026.
Which tax year’s figures are used?
HMRC uses information from your most recently submitted Self-Assessment tax return to determine whether you meet the threshold. The thresholds are set out below:
| Qualifying income thresholds | First tax year from which mandation applies | Basis used to determine mandation |
| Over £50,000 | 2026–27 | Based on total qualifying income from self-employment and/or property shown on the prior year Self-Assessment return (2024–25). |
| Over £30,000 | 2027–28 | Based on total qualifying income from self-employment and/or property shown on the prior year Self-Assessment return (2025-26). |
| Over £20,000 | 2028–29 | Based on total qualifying income from self-employment and/or property in 2026–27. |
What doesn’t count as qualifying income for MTD?
While HMRC considers income from a trade or property business when calculating qualifying income, many other income sources are excluded from the calculation. That means your total annual income may be much higher than your MTD qualifying income.
Here’s what’s not included for MTD:
- Dividend income from shares or investments
- State pensions and private pension income
- Income from partnerships does not count for individuals (at present)
HMRC has also introduced certain exemptions and deferrals for specific groups of taxpayers, so crossing the threshold doesn’t always mean you’ll be mandated immediately. Your individual circumstances matter too.
Does bank interest count as income for MTD?
No. Bank interest, savings, and most forms of investment income do not count towards qualifying income for MTD. While they may need to be declared on your Self-Assessment tax return, they are not included when HMRC calculates whether you fall within the MTD rules.
How is self-employment income calculated for the Making Tax Digital for income tax threshold?
For MTD purposes, HMRC looks at your gross self-employment income, not your profit.
Example 1: Calculating income from self-employment only
Let’s say you earned £55,000 from self-employment during the tax year and have no property income. Although your profit may be much lower after expenses, your qualifying income is based on the £55,000 gross income figure.
In this scenario, your MTD qualifying income would be £55,000.
Example 2: Calculating income from self-employment and rental property
Let’s say you earned £28,000 from self-employment and received £8,000 in rental income from a UK property. Because both income sources count towards the threshold, they are added together.
In this scenario, your combined qualifying income would be £36,000.
Both calculations use gross income rather than profit, so allowable expenses, mortgage interest, and residential property finance costs are not deducted when determining whether you exceed the threshold.
How jointly owned property income is treated
If you are a joint property owner, you only include your share of the property income in your quarterly submissions.
For example, if a rental property generates £20,000 in gross rental income and you own 50% of it, you would generally report £10,000 as your share.
When submitting quarterly updates, you can choose to report only the income and leave expenses for the year-end process. If you opt for this approach, you’ll include the expenses in your final declaration. If your property expenses vary throughout the year, this can make quarterly tax reporting simpler.
Does the property allowance affect MTD for Income Tax?
The MTD for IT quarterly submissions are summary updates of income and expenses. The decision to claim the property allowance is made later as part of the final declaration.
If you claim the property allowance, you cannot also claim allowable expenses against the same property income. The allowance is not available if some or all of the property income comes from a connected party, such as a close family member or a company that you control.
What if you stop trading?
If you stop trading and no longer receive income from self-employment or property, you can notify HMRC to opt out of MTD for Income Tax.
And similarly, if your qualifying income falls below the threshold for three consecutive tax years, you may be able to opt out of MTD from the following relevant tax year.
Why professional support matters for MTD compliance
MTD for Income Tax represents a significant change for many taxpayers. You need to understand which income sources are included, maintain digital records, use MTD-compatible software correctly, and submit regular updates. Small mistakes can quickly add up and create bigger problems later.
Working with an accountant can help remove any uncertainty. You’ll have someone who:
- Understands the rules, and
- Keeps up with HMRC developments
More importantly, it gives you the freedom to focus on running your business or managing your property portfolio, rather than worrying about tax reporting deadlines and compliance requirements.
Need help with Making Tax Digital? Contact Treetops
At Treetops, we help self-employed individuals and landlords understand their obligations, prepare for Making Tax Digital, and put practical systems in place that make compliance easier.
If you’re unsure whether you’ll need to join MTD for Income Tax, or if you’d like help getting ready, get in touch with our team or email us at [email protected].
FAQs about qualifying income for MTD
What happens if I am mandated but do not file my quarterly submissions?
If you submit your quarterly submissions late under the Making Tax Digital rules, you’ll get penalty points. You earn one point for each missed deadline. Once you reach four penalty points, you will have to pay a fine of £200. HMRC have announced a soft landing for the 26/27 tax year.
