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April 2026 is the most significant change to UK tax reporting in a generation. Over 850,000 landlords and self-employed people must begin using Making Tax Digital for Income Tax, yet one question still trips up even the most financially aware among them: is MTD based on what I earn or what I keep?
The answer is what you earn. Not your profit. Not your taxable income after deductions. Your gross income before a single expense is touched. This distinction is causing widespread confusion and in some cases it is causing people to assume they are safely under the threshold when they are not.
This article explains exactly how HMRC calculates the MTD threshold, whether rental income is counted before or after expenses, and the traps that catch people out even when their profits are modest.
KEY TAKEAWAYS
MTD is based on gross income, not profit.
Rental income counts before expenses like agent fees, repairs, or mortgage interest.
Only self-employment and property income count toward the MTD threshold.
PAYE salary, dividends, pensions, and savings interest do not count.
You can be caught by MTD even if your profit is low, as long as gross income is above the threshold.
For April 2026, HMRC looks at your 2024/25 Self Assessment return to decide if MTD applies.
What Is Making Tax Digital for Income Tax?
Making Tax Digital for Income Tax (MTD for ITSA) replaces the traditional annual Self Assessment return for landlords and self-employed people who exceed HMRC's qualifying income thresholds. Instead of filing once a year, those mandated into MTD must submit four quarterly digital updates and a final year-end declaration using HMRC-compatible software
The rollout is phased across three years. Those with qualifying income above £50,000 must join from April 2026. The threshold drops to £30,000 from April 2027 and to £20,000 from April 2028. Whether you fall into any of these phases depends entirely on your qualifying income. Understanding what that means is the starting point for everything else.
What Counts Toward Your Qualifying Income
Not all income sources count toward the qualifying income for MTD threshold purpose. HMRC only looks at two categories of income: self-employment and property. Everything else is excluded from the calculation entirely.
✓ DOES COUNT
✓ Gross self-employment turnover from all trades in your name
✓ Gross rental income from UK property
✓ Foreign property income (if UK tax resident)
✓ Your share of jointly owned property income
✕ DOES NOT COUNT
✕ PAYE employment salary
✕ bonuses Dividends
✕ Pension
✕ Partnership profit share
✕ Savings interest and investment income
These exclusions mean your total income from all sources could be very high while your qualifying income for MTD purposes remains modest.
A landlord earning £30,000 in PAYE salary, £20,000 in dividends, and £28,000 in gross rental income has a qualifying income of £28,000 and is not mandated in April 2026.
Is MTD Based on Income or Profit?
MTD is based on gross income, not profit. HMRC calls this your qualifying income, and it is defined as your total gross income from self-employment and property in a tax year, before any expenses are deducted.
Gross income | Net income |
|---|---|
It is everything you receive before anything is taken off. If your rental property brings in £60,000 in rent, your gross income from that property is £60,000, regardless of how much you spend maintaining it, paying a letting agent, or servicing a mortgage. | It is what remains after allowable expenses have been deducted. This is what most people associate with profit. It is also the figure used to calculate how much tax you owe. But it plays no role in determining whether you are inside or outside the MTD mandate. |
WORKED EXAMPLE 1
The two figures can be dramatically different.
A landlord with £55,000 gross rental income and £40,000 in legitimate 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, which exceeds the £50,000 threshold. Profit is irrelevant to the test.
Why Does HMRC Use Gross Income But not Profit Income?
HMRC uses gross income for the MTD threshold because Turnover is a more objective and consistent measure of the scale of your business activity than profit. Profit depends on which expenses you claim, how you categorise them, and various accounting judgements, so using profit would create inconsistency and make the threshold easier to manipulate.
HMRC base the test entirely on figures already shown on your Self-Assessment return. For self-employment, HMRC reads the turnover figures from the SA103 supplementary pages. For UK property income, the relevant figure comes from the SA105 pages. For foreign property, it is the SA106. These are the raw receipts figures, before any costs are applied.
HMRC then combine the relevant gross income figures from these boxes to work out your total qualifying income. This means HMRC does not need to assess or scrutinise your expense claims to determine your MTD status. The threshold test is applied to one clean figure on your return.
MTD £50,000 Threshold: Gross Income or Net Profit?
The £50,000 threshold is tested against gross qualifying income only. It has nothing to do with your profit figure, and it has nothing to do with your total income from all sources. It is specifically the gross receipts from self-employment and property combined.
HMRC calculates your qualifying income by looking at the Self Assessment return you submitted in the previous tax year. This is known as the CY-2 rule (Current Year Minus 2). The table below shows which return feeds which mandate 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 2
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.
Worth Noting
If you amend your Self Assessment return after the start of the relevant tax year and the amendment increases your qualifying income above the MTD threshold, HMRC will not treat you as mandated into MTD for that current tax year. They will take the increased qualifying income into account when deciding whether you need to use MTD for the following tax year.
Three Traps That Catch People Out
High Turnover, Low Profit
This is the most common trap. You can have a business with significant allowable expenses, pay very little income tax, and still be fully mandated into MTD because your gross turnover exceeds the threshold.
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 you are VAT registered, you can choose to include or exclude VAT when you declare your business income. If you include VAT in your declared income, that VAT forms part of your qualifying income. This can push landlords and sole traders over the threshold unexpectedly, particularly those whose gross figures are close to £50,000.
The Joint Property Net Figure Trap
Two co-owners of the same property can end up assessed on different qualifying income figures if one receives a gross figure and the other receives a net figure via their letting agent. If your agent provides you with a statement showing only your share of income after their fees have been deducted, and that is what appears on your Self Assessment return, that net figure is what HMRC uses to assess your qualifying income. Your co-owner, filing gross, may face a different MTD outcome from the same property.
Conclusion
MTD is based on gross income, not profit. Rental income counts before expenses. Your salary, dividends, and pension do not count at all. The threshold is tested against your previous year's Self Assessment return using the gross figures HMRC reads directly from your supplementary pages.
The confusion between gross and net is the single biggest reason landlords and self-employed people misjudge their MTD position. If you are anywhere near the threshold, always check the gross figure first. Your profit tells you what you owe in tax. Your gross income tells you whether MTD applies.
