MTD Threshold: What is Qualifying Income for MTD?

Making Tax Digital (MTD) for Income Tax is being rolled out in phases. Whether you have to join in the first wave depends entirely on your qualifying income.

Many taxpayers look at their bank accounts or their final profit numbers and mistakenly believe they are exempt. Here is exactly how to calculate your qualifying income and check if you cross the MTD threshold.

The MTD Thresholds

HMRC has set two key thresholds for the rollout of MTD for Income Tax:

• From 6 April 2026: Mandatory if your qualifying income is over £50,000.
• From 6 April 2027: Mandatory if your qualifying income is over £30,000.

If your income is below £30,000, you do not have to join MTD (though you can voluntarily).

What is "Qualifying Income"?

The biggest mistake people make is confusing profit with qualifying income.

Qualifying income is your gross income. This means the total amount of money your business took in before you deducted any expenses, taxes, or materials.

• If you are a sole trader, it is your total sales/turnover.
• If you are a landlord, it is the total rent collected.
• If you are a CIS subcontractor, it is the total amount invoiced before the contractor made the 20% or 30% deduction.

You Must Combine Your Income Sources

If you have more than one source of self-employed or property income, you must add them together to check against the MTD threshold.

Example 1: The Part-Time Landlord Sarah runs a freelance graphic design business (sole trader) with a gross income of £35,000. She also rents out a flat, which generates £18,000 in gross rental income.

• Freelance income: £35,000
• Rental income: £18,000
• Total Qualifying Income: £53,000
• Verdict: Sarah must join MTD in April 2026 because her combined income is over £50,000.

Example 2: Joint Property Owners John and his brother own a property together that generates £60,000 in rent. They split it 50/50. John has no other self-employed income.

• John's share of rental income: £30,000
• Total Qualifying Income: £30,000
• Verdict: John does not have to join MTD in 2026. He will join in 2027 when the threshold drops to £30,000.

What Income Does NOT Count?

You do not include income from employment (PAYE), savings interest, dividends, or pensions when calculating your qualifying income for the MTD threshold. It is strictly based on self-employment and property income.

How Will HMRC Know?

HMRC will use the data from your previous Self Assessment tax returns to determine if you cross the threshold. If your return for the 2024/25 tax year shows a qualifying income over £50,000, HMRC will expect you to register for MTD starting in April 2026.

If you cross the threshold, you don't need to panic. You can keep using your existing spreadsheets and simply use bridging software to submit your updates.