What Counts as Qualifying Income for Making Tax Digital for Income Tax?

Qualifying income is the figure HMRC uses to decide if and when you must follow Making Tax Digital for Income Tax. It’s not your total income but only the gross turnover from self-employment and property before expenses. That means you calculate using the full rent or trade receipts, not profit after deductions.

For example, rental income of £55,000 triggers MTD, even if your mortgage and costs leave you with only £8,000 profit. HMRC will look at the qualifying income shown on your most recent Self-Assessment return to assess your obligations, so past income drives future compliance.

Income Sources That Count Toward Your MTD Threshold

Self-Employment Income

All income from businesses you run as a sole trader, before taking off any costs. This includes fees for consulting, trades, professional services, or sales. If you have more than one business, HMRC totals all income to calculate your threshold.

Property Rental Income

All rent and property-related payments from your UK or overseas properties, before expenses. This includes basic rent, service charges, insurance claims, and any additional income from letting residential or commercial property.

Combined Income

If you earn from both self-employment and property, HMRC adds these to determine whether your qualifying income exceeds the MTD threshold.

How Joint Property Ownership Affects Your Calculation

If you jointly own rental properties, only your share of the rental income counts toward your Making Tax Digital (MTD) threshold.

For example, if spouses share properties earning £80,000 a year and their ownership is split 50/50, each would include £40,000 in their qualifying income.

If one owner also has self-employment income, HMRC adds their property share to that income to check whether they meet the £50,000 threshold.

Importantly, MTD obligations are assessed individually. One owner’s MTD mandate does not automatically obligate the other to comply; each person is tested separately.

Income Sources That Don’t Count Toward MTD

Employment income: salaries, wages, or perks (like company cars) reported through PAYE.

Pensions: state, workplace, or private pensions, plus annuities.

Savings and investments: bank interest, share dividends, or income from REITs.

Capital gains:  profits from selling property, shares, or other assets.

Foreign income (non-property): overseas wages, savings, or investments.

Partnership income: profits from partnerships remain outside MTD until at least April 2027.

Other income – social security payments, trust income, or similar sources.

How HMRC Will Use Your Qualifying Income

HMRC checks your qualifying income from your most recent Self-Assessment return using the “current year minus two” (CY-2) rule:

• For April 2026 MTD obligations, HMRC looks at your 2024/25 return (due 31 January 2026).
• If that return shows qualifying income above £50,000, you will be mandated for MTD from 6 April 2026.
• The timeline works progressively: £50,000 threshold from April 2026, £30,000 from April 2027, and £20,000 from April 2028.

This look-back approach means your current year’s income doesn’t immediately trigger MTD obligations. Instead, HMRC uses historical data to provide a clear, predictable timeline for MTD compliance.

Which Self-Assessment Boxes Count Toward Qualifying Income

These specific boxes from your Self-Assessment return will count towards the qualifying income threshold for different sources of income.

Self-Employment Income – SA103F Box 15 or SA103S Box 9– turnover – SA103F Box 16 or SA103S Box 10– other income

UK Property Income – SA105 Box 20 – UK property income – SA105 Box 22 – lease premium – SA105 Box 23 – reverse premiums

Foreign Property Income – SA106 Box 14 – foreign property income – SA106 Box 16 – foreign lease premiums

Planning Your MTD Preparation

To prepare for Making Tax Digital, begin by calculating your qualifying income. Use gross figures from all self-employment and property sources, ignore employment, pension, and investment income. Reviewing your recent Self-Assessment returns helps you understand historical income levels and estimate when MTD obligations may begin.

Consider any potential changes that could affect your qualifying income, such as business growth, new property acquisitions, or additional income streams. Professional advice is particularly valuable if you are near the thresholds or have complex income arrangements requiring careful calculation.

Next, prepare your digital record-keeping systems and ensure your software is HMRC-approved, like RentalBux. Starting early gives you better financial visibility and a smoother transition when your MTD obligations commence, helping you stay compliant without disruption.

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