MTD Qualifying Income Explained: How HMRC Measures It

MTD qualifying income is your total gross income from self-employment and property in a tax year, before expenses. If that combined figure is over the threshold for the relevant year, you must use Making Tax Digital for Income Tax, whatever your profit turns out to be.

This one definition causes more confusion than any other part of Making Tax Digital. People look at their profit, or at their total income including a salary, and reach the wrong answer. This guide explains exactly what HMRC counts, what it leaves out, which tax year it looks at, and how to work out your own figure.

Key takeaways

• Qualifying income is gross self-employment income plus gross property income, added together.
• It is measured before expenses, so it is a turnover test, not a profit test.
• Salary, pensions, dividends and savings interest do not count.
• The thresholds are over £50,000 from 6 April 2026, over £30,000 from 6 April 2027 and over £20,000 from 6 April 2028.
• HMRC uses a Self Assessment return you have already filed to decide, then writes to you.

What "qualifying income" means

Qualifying income is the term HMRC uses for the income that decides whether you must join Making Tax Digital for Income Tax. It is the total income you receive in a tax year from self-employment and from property, before you deduct expenses, allowances or tax. HMRC explains the calculation in its guidance on working out your qualifying income.

Two points matter most. First, the sources are combined: a sole trader who also lets out a flat adds the two together. Second, the figure is gross: it is the turnover box on the self-employment pages and the total rents box on the property pages of your tax return, not the profit after costs.

The thresholds and the tax years HMRC looks at

MTD for Income Tax is being phased in by income band. For each start date, HMRC looks at the qualifying income on a specific, earlier tax return:

• From 6 April 2026: qualifying income over £50,000 in the 2024/25 tax year.
• From 6 April 2027: qualifying income over £30,000 in the 2025/26 tax year.
• From 6 April 2028: qualifying income over £20,000 in the 2026/27 tax year.

So the return most people are filing now, for 2025/26 and due online by 31 January 2027, is the one that decides whether they join in April 2027. HMRC reviews the return and writes to confirm if you need to sign up. You can also use the checker on GOV.UK to find out if and when you need to use MTD for Income Tax.

What counts and what does not

Some situations need a closer look: for example a business that started part-way through the year, income from property overseas, or income that is fully covered by an allowance. The rules for these are set out in HMRC's guidance, so check the current position on GOV.UK rather than guessing.

Why turnover, not profit, catches people out

Many self-employed people think about their business in terms of what they take home. A delivery driver, a tradesperson buying materials or a market trader buying stock can have high sales and a modest profit. For MTD purposes the sales figure is what matters. A business with £52,000 of sales and £18,000 of profit is over the £50,000 threshold.

The same applies to landlords. Rent of £1,500 a month from one property is £18,000 a year of qualifying income, even if most of it goes on the mortgage. Add that to a part-time self-employed business turning over £15,000 and the combined figure is £33,000, which is over the £30,000 threshold that applies from April 2027.

Step by step: work out your own qualifying income

1. Find the right tax return. For the April 2027 start date, use your 2025/26 figures.
2. Take your self-employment turnover. This is total sales or fees for the year, before expenses. If you have more than one sole trader business, add them together.
3. Take your gross property income. Total rents received, before any costs. Use only your own share of jointly owned property.
4. Add the two together. Ignore salary, pensions, dividends, interest and partnership income.
5. Compare with the threshold for the relevant start date: £50,000, £30,000 or £20,000.
6. If you are close to the line, check your bookkeeping is accurate. A missed invoice or a duplicated sale can put you on the wrong side.
7. Plan ahead. If you are over, choose compatible software and start keeping digital records before your start date.

Worked example (illustrative example)

"Priya", an invented illustrative example, works part-time as an employed teaching assistant on a salary of £16,000. She also runs a small cake-making business as a sole trader and lets out a flat she inherited. In the 2025/26 tax year her figures are:

• Salary through PAYE: £16,000 (does not count)
• Cake business sales: £21,500, with £9,000 of ingredients and other costs
• Rent from the flat: £11,400, with £4,000 of costs

Her qualifying income is £21,500 plus £11,400, which is £32,900. Her combined profit is only £19,900, and her total income including salary is far higher, but neither of those numbers is the test. Because £32,900 is over £30,000, Priya must use MTD for Income Tax from 6 April 2027 for both the cake business and the flat. The person and figures are invented to illustrate the calculation.

What happens once you are over the threshold

From your start date you need to keep digital records of your self-employment and property income and expenses, send HMRC a quarterly update for each business using compatible software, and finalise the year with a tax return submitted through software. Our guides to quarterly update deadlines and what counts as a digital record explain the day-to-day requirements.

Common mistakes

• Using profit instead of turnover and wrongly concluding you are under the threshold.
• Forgetting to add rental income to self-employment income.
• Adding salary or dividends and wrongly concluding you are over it.
• Counting the whole rent on a jointly owned property instead of your own share.
• Looking at the wrong tax year: the test uses an earlier return, not the current year.
• Waiting for HMRC's letter before preparing, which leaves little time to set up software.

Not sure which side of the line you are on?

Our MTD compliance service starts from £49 per month and includes checking your qualifying income, setting up compatible software and sending your quarterly updates. If you have not yet worked out whether MTD applies to you at all, start with our guide to who is in MTD and from when.

Want a clear answer on your own figures? Get in touch or see our pricing.