.jpg&w=64&q=75){kind=small}
April 2026 brought the biggest change to UK tax reporting in a generation, and one question still trips up even financially confident landlords: is MTD based on what I earn, or what I keep? The answer is what you earn. Making Tax Digital (MTD) is based on your gross income before a single expense is deducted, not your profit. That one distinction is causing people with modest profits to wrongly assume they are safely under the threshold.
This article explains exactly how HMRC calculates the figure that decides whether MTD applies to you, whether rental income counts before or after expenses, and the traps that catch people out even when their profits are low.
KEY TAKEAWAYS
MTD is based on gross income, also called qualifying income not profit.
Rental income counts before expenses such as agent fees, repairs, and mortgage interest.
Only self-employment and property income count toward the threshold.
PAYE salary, dividends, pensions, and savings interest do not count at all.
You can be mandated even on a low profit, as long as gross income exceeds the threshold.
For April 2026, HMRC looks at the gross figures on your 2024/25 Self Assessment return.
What Is Qualifying Income for MTD?
Qualifying income is the figure HMRC uses to decide whether you are mandated into Making Tax Digital for Income Tax (MTD for ITSA), the system that replaces the annual Self Assessment return with four quarterly digital updates and a year-end declaration. It is your total gross income from self-employment and property in a tax year, before any expenses are deducted.
Two income types count toward qualifying income: self-employment income and property income (UK and foreign). Everything else is excluded, regardless of size:
PAYE employment salary and bonuses
Dividends
Pension income
Your share of profit as an individual partner in a partnership
Savings interest and other investment income
This means your total income from all sources could be high while your qualifying income stays modest.
For Example
A landlord whose 2024/25 return shows £30,000 in PAYE salary, £20,000 in dividends, and £28,000 in gross rent has a qualifying income of just £28,000 and is not mandated from April 2026, despite £78,000 of total income.
Does MTD Use Gross Income or Net Profit?
MTD uses gross income. HMRC tests your gross receipts from self-employment and property, before expenses — never your profit.
Gross income is everything you receive before anything is taken off. If a rental property brings in £60,000 in rent, your gross income from it is £60,000, no matter how much you spend on maintenance, letting agents, or mortgage interest.
Net income is what remains after allowable expenses. This is what most people mean by "profit," and it is the figure used to calculate the tax you owe. But it plays no part in deciding whether MTD applies.
The two can be worlds apart.
For Example
A landlord with £55,000 gross rental income and £40,000 of allowable expenses has a net profit of £15,000 and pays very little tax. HMRC still mandates that landlord into MTD, because qualifying income is £55,000 and exceeds the £50,000 threshold. Profit is irrelevant to the test.
Why HMRC Uses Gross Income, Not Profit
HMRC uses gross income because turnover is a more objective and consistent measure of business scale than profit. Profit depends on which expenses you claim and how you categorise them using it would make the threshold inconsistent and easy to manipulate.
The test runs entirely off figures already on your Self Assessment return. For self-employment, HMRC reads the turnover from the SA103 pages; for UK property, the SA105 pages; for foreign property, the SA106. These are raw receipts, before costs. HMRC simply adds the relevant gross figures together to reach your qualifying income, so it never needs to scrutinise your expense claims to decide your MTD status.
The current legal framework for Making Tax Digital for Income Tax is contained in The Income Tax (Digital Obligations) Regulations 2026 (SI 2026/336), which came into force on 1 April 2026.
These regulations were made under the powers granted by Schedule A1 to the Taxes Management Act 1970 a schedule originally inserted by section 60 of the Finance (No. 2) Act 2017.
Is the £50,000 Threshold Gross or Net?
The threshold is tested against gross qualifying income only. It has nothing to do with your profit, and nothing to do with your total income from all sources only the combined gross receipts from self-employment and property.
HMRC works from the Self Assessment return you filed in the year before the mandate starts. This is the CY-2 rule (Current Year Minus 2). The table shows which return feeds which start date.
MTD Start Date | Threshold | SA Return Assessed |
|---|---|---|
6 April 2026 | £50,000 | 2024/25 return (due 31 Jan 2026) |
6 April 2027 | £30,000 | 2025/26 return (due 31 Jan 2027) |
6 April 2028 | £20,000 | 2026/27 return (due 31 Jan 2028) |
Worked Example
Gross self-employment turnover | £60,000 |
Allowable expenses claimed | £15,000 |
Net profit | £45,000 |
Qualifying income | £60,000 |
Result | MTD mandatory from April 2026. Net profit below £50,000 is irrelevant. |
These figures are illustrative. Your qualifying income depends on the specific figures on your own return.
Info
One refinement worth knowing: If you amend your Self Assessment tax return after the start of the relevant tax year, any increase that pushes your qualifying income above the threshold will not be considered for Making Tax Digital for Income Tax for that specific tax year. Instead, HMRC will consider these amendments to determine when you must begin using the service for future years.
Four Traps That Catch People Out
High Turnover, Low Profit
The most common trap. You can run a business with heavy expenses, pay very little income tax, and still be fully mandated because gross turnover exceeds the threshold.
Worked Example
Gross self-employment turnover | £52,000 |
Allowable expenses | £48,000 |
Net profit | £4,000 |
Qualifying income: £52,000
MTD mandatory from April 2026. A low tax liability does not equal a low qualifying income.
The VAT Trap
If you use the cash basis and are VAT registered, you can choose to include or exclude VAT in your declared business income. If you include it, that VAT becomes part of your qualifying income which can quietly push sole traders and landlords over the threshold, especially those already close to £50,000.
The Joint Property Trap
The threshold is tested on each owner individually, using the share of income reported on that person's own return. If your letting agent gives you a statement showing only your share after their fees, and that net figure is what lands on your Self Assessment, HMRC assesses you on that figure while a co-owner reporting gross may end up with a different MTD outcome from the same property. Co-owners should check they are reporting on a consistent basis.
The Part-Year Annualisation Trap
The threshold is tested on each owner individually, using the share of income reported on that person's own return. If your letting agent gives you a statement showing only your share after their fees, and that net figure is what lands on your Self Assessment, HMRC assesses you on that figure while a co-owner reporting gross may end up with a different MTD outcome from the same property. Co-owners should check they are reporting on a consistent basis.
Do Non-Resident Landlords Have to Join MTD?
Usually yes. MTD for ITSA is driven by qualifying income, not residence, so a non-resident landlord with gross UK property income above the relevant threshold (£30,000 for the April 2027 cohort, falling to £20,000 from April 2028) is generally in scope.
Two points need checking before assuming MTD applies. First, a non-resident with no UK National Insurance number is permanently exempt and cannot sign up at all, so confirm the NINO position first as it can take MTD off the table entirely. Second, anyone who completed the SA109 residence pages on their 2024/25 Self Assessment return is automatically exempt for 2026/27 and is not mandated until April 2027, joining from the 2027/28 tax year if qualifying income exceeded £30,000 in 2025/26. This SA109 deferral covers all residence-page filers, not only non-residents, so non-resident landlords should confirm it applies to them rather than assuming they are out of scope.
What You Should Do Now
The single most useful action is to pull your 2024/25 Self Assessment return and find the gross figures from self-employment and property not the profit, not the net figures, not your total income from all sources.
If those gross figures combined exceed £50,000, you are mandated from April 2026 and must file quarterly updates using HMRC-compatible software. HMRC may write to confirm this, but the letter is not the trigger. The obligation exists whether or not a letter arrives it is your responsibility to check.
Getting out is harder than getting in. To leave MTD, your qualifying income must stay below the relevant threshold for three consecutive tax years. If your income dips the year after you are mandated, you cannot simply stop.
If you are above £30,000 but below £50,000, your date is April 2027. Above £20,000 but below £30,000, it is April 2028. In both cases the time to prepare is now, not the month before.
Conclusion
If your gross figures from property or self-employment are anywhere near £50,000, your MTD position turns on one number on one return and the gross-versus-net confusion is the single most common reason people get it wrong. Misjudging it cuts both ways: assume you are out when you are in, and you miss quarterly deadlines and face penalties; assume you are in when you are not, and you take on digital record-keeping you never needed.
This is not always a question a calculator settles cleanly, particularly for joint owners, VAT-registered traders, and non-resident landlords. If you want your MTD position confirmed in writing before the next deadline, here is how to get it.
RentalBux is an HMRC-recognised MTD software platform built for UK landlords and sole traders. Use the RentalBux MTD calculator to check your qualifying income status before April 2026.
