How to Work Out Your Qualifying Income for Making Tax Digital
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Why This One Number Decides Everything
Whether Making Tax Digital applies to you comes down to a single figure: your qualifying income. Work it out correctly and your position is clear. Work it out wrongly and you either take on obligations you do not have, or miss ones you do.
This is no longer a hypothetical exercise. Making Tax Digital for Income Tax, still widely called MTD for ITSA, went live on 6 April 2026 for the first group of sole traders and landlords, and HMRC began automatically signing up people who should have joined but had not. The rules for working out qualifying income are settled, and this guide walks through them, including the edge cases that catch people out.
What Qualifying Income Is
Qualifying income is the figure HMRC uses to decide whether you must keep digital records and send quarterly updates through compatible software rather than filing one annual Self Assessment return.
The phases work like this, and each one is tested against a tax year that has already been filed:
| MTD starts | Qualifying income | Tested on your return for | Filing deadline for that return |
|---|---|---|---|
| 6 April 2026 | More than £50,000 | 2024/25 | 31 January 2026 |
| 6 April 2027 | More than £30,000 | 2025/26 | 31 January 2027 |
| 6 April 2028 | More than £20,000 | 2026/27 | 31 January 2028 |
The £20,000 phase has a confirmed date of April 2028 rather than being open-ended. Note also that the test is more than the threshold. Someone whose qualifying income lands at exactly £30,000 is not caught by the April 2027 phase, which matters if you are working with round numbers and sitting on the line.
The Core Rule: Gross Receipts, Not Profit
This is the point that matters most.
Qualifying income is based on gross receipts, the money coming in before you deduct any expenses or allowances. It is not your taxable profit and it has nothing to do with the tax you pay. It is the top line from your self-employment and property income.
A sole trader with £40,000 of turnover and £15,000 of allowable expenses has a taxable profit of £25,000, which sits comfortably below the £30,000 threshold. Their qualifying income is still £40,000, and they are in scope from April 2027. The same logic catches landlords with large mortgages: the interest comes off the profit, not off the gross rent.
Which Income Sources Count
Two sources count. Self-employment income, meaning all trading receipts from any sole trader business you run, and property income, meaning gross rental receipts from both UK and overseas property.
Employment income, dividends, savings interest, capital gains and pension income are all excluded. If you have a full-time job and let one property on the side, only the rent counts towards this particular test, however large the salary.
Adding It All Together
Qualifying income is aggregated across everything you run. You do not test each source in isolation.
Take someone with trading receipts of £29,000 from a sole trader business and gross rents of £22,000 from a let property. Neither figure crosses £50,000 on its own. Together they come to £51,000, which put that person in scope from April 2026.
This is the mistake people make most often. Looking at two modest income streams separately and concluding that neither is big enough gives the wrong answer, because HMRC never looks at them separately.
The Edge Cases
Jointly Held Property
Where you own a property with someone else, the test uses your reported share rather than the total rent. A couple who jointly own a property producing £60,000 of gross rent, split equally, each have £30,000 of qualifying income from it.
That can put two people who own the same asset in different positions. If one of them also has self-employment income and the other does not, one may be mandated while the other is not.
UK and Overseas Property
UK property and overseas property are separate businesses for tax purposes and are reported separately on your return. For this threshold test, though, both are counted, so a flat in Manchester and an apartment in Spain contribute their gross rents to the same total.
Part-Year Trading and the Annualisation Rule
If a source of income ran for less than the full tax year, the figures are scaled up to a twelve-month equivalent before being compared with the threshold. A trade that starts on 1 January and takes £8,000 by 5 April is treated as £32,000 for the threshold test, not £8,000.
There is a practical split worth knowing. For a trade, HMRC will annualise the figure itself where it holds enough information, typically because it knows the date the trade started. For a property business, the responsibility sits with you to annualise and work out your own position.
The regulations do allow a different approach where annualising would produce an unreasonable or unjust result, which is the kind of argument to put through an accountant rather than to decide for yourself.
Amendments to a Filed Return
If you amend a return and the amendment pushes your qualifying income over the threshold after your mandation date has already passed, HMRC disregards it for mandation purposes. Amendments made before that point can bring you in.
Seasonal and Part-Time Work
Being seasonal or part-time is not a route out. If the annualised figures cross the threshold, the rules apply in the normal way.
Which Tax Year HMRC Looks At
HMRC uses the qualifying income reported on an earlier return, not a forecast. For the April 2026 phase it looked at 2024/25. For April 2027 it looks at 2025/26, due by 31 January 2027, and for April 2028 at 2026/27.
The useful consequence is that you are never guessing. The figure that decides your position is one you have already earned and, in most cases, already reported.
The uncomfortable consequence is the lag. Income earned in a tax year drives an obligation that begins roughly twelve months after that year ends, so a strong year can commit you to quarterly reporting long after the money has been spent.
If You Think You Are Exempt
Some exemptions apply automatically. These include having no National Insurance number at the relevant date, being a personal representative dealing with someone’s estate, being a Lloyd’s underwriter, and being a non-UK resident in respect of non-UK self-employment or property income. People whom HMRC cannot provide with a digital service, and who already file on paper, are also automatically exempt and do not need to apply.
Everything else requires an application. Digital exclusion, where using digital tools is not reasonably practical because of age, disability, health, location or religious belief, is decided case by case. HMRC updated its guidance in August 2026 to confirm that people due to join from 6 April 2027 can now apply for the non-automatic exemptions, so there is no reason to wait.
A preference for paper is not a ground for exemption. Neither is finding the software annoying.
HMRC Is Now Signing People Up Without You
From September 2026, HMRC began automatically signing up sole traders and landlords who were required to use MTD for the 2026/27 tax year but had not joined, using the qualifying income reported on their 2024/25 returns.
The practical read for anyone near a threshold is that your own calculation is not the only one that counts. If HMRC’s reading of your return puts you over the line, you may be signed up regardless, and being signed up is not the same as being ready. If a letter arrives and you think it is wrong, check your figures against the return HMRC used rather than ignoring it.
Working It Out: Step by Step
- List every relevant source: each self-employment business, and each property you let, UK and overseas, using your share where ownership is joint.
- Take the gross receipts for each. For self-employment, that is turnover before expenses. For property, total rents before mortgage interest, agent fees and repairs.
- Add them together. That total is your qualifying income.
- Annualise anything that ran for part of the year only, remembering that for property the calculation is yours to do.
- Compare the total with the threshold for the relevant year: more than £50,000 for April 2026, more than £30,000 for April 2027, more than £20,000 for April 2028.
- If you are close to a line, or your income is a mix of sources with part-year elements, get an accountant to check it before you act.
FAQ
Does my salary count towards qualifying income?
No. The test covers self-employment trading income and property income only. Wages and anything else taxed through PAYE are excluded entirely.
What if I run more than one business?
All of them count. A plumbing round and a weekend photography business are added together, along with any rental income, to give one qualifying income figure.
I am below the threshold now. Do I need to keep checking?
Yes. The figure moves as your business grows, and because HMRC uses an earlier year’s return, a strong year commits you to MTD about twelve months after that tax year ends. Recalculate each time you complete a return. It is also worth knowing that once you are in, leaving is slow: qualifying income has to stay below your cohort’s threshold for three consecutive tax years before you can ask to come out.
What happens if I do not comply when I should?
Late submission works on points. Each late quarterly update earns one point, four points triggers a £200 penalty, and every further late submission adds another £200. HMRC gave the first cohort a soft landing for 2026/27, with no points for late quarterly updates, and it is understood that this will not extend to those joining in April 2027 or April 2028. The soft landing never covered the year-end declaration or late payment of tax, which carries its own escalating charges.
Does being signed up for MTD for VAT cover me?
No. MTD for VAT and MTD for Income Tax are separate registrations with separate software requirements. Being approved for one says nothing about the other.
Working Out Your Qualifying Income for Making Tax Digital: The Bottom Line
The rules themselves are not complicated. Qualifying income is gross receipts, not profit. It adds together every self-employment business and every property, UK and overseas. Joint property counts at your share, part-year sources are annualised, and the figure that decides your position comes from a return you have already filed.
If your combined gross receipts sit clearly above or below the relevant threshold, you can act with confidence. If you are anywhere near £50,000, £30,000 or £20,000, particularly with a mix of sources or a business that started mid-year, the calculation is worth ten minutes of an accountant’s time before you make assumptions about it.
This article is general information about UK tax rules, not advice, and it does not take account of your circumstances. Thresholds, deadlines, exemptions and penalty rules change. Speak to a qualified accountant or tax adviser about your own position, and check the current rules on GOV.UK, before acting on anything here.