What Is Qualifying Income for Making Tax Digital?

The Making Tax Digital threshold — £50,000 from 6 April 2026 — sounds straightforward until you ask what actually counts towards it. HMRC's definition of qualifying income for MTD ITSA is specific: gross self-employment income and gross UK property income count; PAYE salary, dividends, and savings interest do not. For people with mixed income sources, this distinction matters enormously — particularly those sitting near the threshold.

What MTD ITSA is and what triggers it

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) replaces the annual Self Assessment return for people with certain types of income above a threshold. Whether it applies to you depends entirely on what HMRC counts as qualifying income.

The three phases of mandatory MTD are:

• Phase 1: over £50,000 qualifying income — mandatory from 6 April 2026
• Phase 2: over £30,000 qualifying income — mandatory from April 2027
• Phase 3: over £20,000 qualifying income — mandatory from April 2028

For a full explanation of what the scheme involves in practice, the guide on what Making Tax Digital means for sole traders covers quarterly submissions, software requirements, and year-end obligations.

What counts as qualifying income

HMRC's qualifying income for MTD ITSA includes two income categories only.

Self-employment income (gross turnover)

Your gross self-employment income — the total you invoice or earn from your business before deducting any expenses — counts towards the qualifying income threshold. This is turnover, not profit.

If you have multiple self-employed trades, the gross income from each is combined.

Example: A graphic designer with £48,000 in client invoices and £30,000 in business expenses has gross self-employment qualifying income of £48,000 — below the Phase 1 threshold. Their profit of £18,000 is not the figure HMRC uses.

UK property income (gross rental income)

Gross UK rental income — what you receive before deducting any property expenses — also counts. This includes residential lettings, holiday lets, commercial property, and rent-a-room income (calculated on the gross amount, before the rent-a-room allowance is applied). Overseas property income does not count.

Example: A sole trader with £35,000 in business income and £18,000 in annual rental income has qualifying income of £53,000 — above the Phase 1 threshold and in scope from April 2026.

What does not count as qualifying income

The following income types are excluded from the MTD ITSA qualifying income calculation:

Income type	Counts towards MTD threshold?
Self-employment income (gross)	Yes
UK property income (gross)	Yes
PAYE employment income	No
Pension income	No
UK savings interest	No
Dividends	No
Capital gains	No
Overseas property income	No

This distinction catches many people out. Someone earning £60,000 from PAYE employment and £10,000 from self-employment has qualifying income of only £10,000 — well below any current threshold, despite a high total income.

Gross income, not profit: why it matters

The threshold is assessed on gross income, not profit. For sole traders with significant costs — materials, subcontractors, equipment, professional fees — gross income can exceed profit considerably.

A builder with £80,000 in annual turnover and £50,000 in costs has qualifying income of £80,000. Their profit of £30,000 is not what HMRC uses. They are fully in scope for MTD from April 2026.

For landlords, mortgage interest, letting agent fees, and maintenance costs do not reduce qualifying income. A landlord receiving £55,000 in annual gross rent — with £30,000 in costs — still has qualifying income of £55,000.

Common scenarios

Sole trader only

A freelance photographer with gross client income of £52,000 and business costs of £12,000 has qualifying income of £52,000. MTD applies from April 2026, regardless of their £40,000 profit.

Sole trader and PAYE employment

A part-time employee earning £25,000 from an employer and £28,000 from freelance work has qualifying income of £28,000 — the self-employment gross income only. Below the Phase 1 threshold; potentially in scope at the £30,000 Phase 2 threshold from April 2027.

Sole trader and UK property

A self-employed consultant with £40,000 in gross consultancy fees and £12,000 in annual rental income has qualifying income of £52,000. In scope from April 2026.

Property income only

A landlord with no self-employment income who receives £55,000 in gross annual rent has qualifying income of £55,000. MTD applies from April 2026.

PAYE employment and property

An employee earning £80,000 from their employer and £18,000 in buy-to-let rental income has qualifying income of £18,000 — rental income only; the PAYE salary is excluded. Below all current thresholds.

How to check whether you are in scope

To assess your qualifying income, use your most recent Self Assessment return:

1. Self-employment pages: Find your turnover figure — gross income before any expenses.
2. UK property pages: Find total income received, before any property expenses.
3. Add both figures together. This is your qualifying income for MTD purposes.

If the total exceeds £50,000, MTD applies from April 2026. Between £30,000 and £50,000, you come in scope from April 2027.

If you are not certain whether MTD applies to your specific situation, the MTD eligibility checker works through the relevant income types and gives a clear result in a couple of minutes. The guide on who needs to comply with Making Tax Digital also covers edge cases and exemptions in detail. Those who have confirmed they are in scope will find the MTD preparation checklist a useful next step — covering software sign-up, digital records, and quarterly submission schedules.