What Counts as Qualifying Income for Making Tax Digital?

If you're self-employed, one number decides whether Making Tax Digital (MTD) for Income Tax applies to you: your qualifying income. Get that number right and everything else — your start date, your deadlines, whether you need new software at all — falls into place. Get it wrong and you either prepare for a regime you don't have to join yet, or miss one you do.

The short version

Qualifying income is your gross income, before expenses, from self-employment and property — added together. It is based on turnover, not profit. It does not include income from a salaried job, dividends, savings interest or pensions.

If that total is over £50,000, you're in the first wave of MTD for Income Tax, mandatory from 6 April 2026. Lower thresholds follow in later years.

Why qualifying income matters

MTD for Income Tax changes how you keep records and report to HMRC. Instead of one annual Self Assessment return, you keep digital records and send HMRC a quarterly update four times a year, then a final declaration. Whether you have to do this — and when you start — depends entirely on your qualifying income.

Note the bands are strict: the test is more than the figure, so exactly £50,000 falls into the 2027 band, not 2026.

It's measured on a past year — not this one

HMRC decides whether you're mandated from the qualifying income on your most recent Self Assessment return — a lookback, not a forecast. Each phase is tied to a specific tax year: the £50,000 test uses your 2024–25 figures, £30,000 uses 2025–26, and £20,000 uses 2026–27. HMRC writes to you if you're over the line, but it's still your job to check.

What counts toward qualifying income

Two sources, and only two, count:

• Self-employment / sole-trader income — your total business turnover before you deduct any expenses.
• Property income — rent from UK and overseas property, again before expenses. (Landlords have a few extra wrinkles, but for most self-employed people this just means "any rent you receive".)

You add these two figures together. That combined total is your qualifying income.

What does NOT count

This is where people trip up. The following are excluded from the test:

• Employment (PAYE) income — your salary from a job.
• Dividends.
• Savings interest.
• Pension income.

None of these push you toward the MTD threshold, even though they're taxable and appear on your tax return. (Partnership income is also handled separately and isn't yet mandated.)

The rule that catches everyone: it's turnover, not profit

Qualifying income is measured before you take off your business expenses. So a freelancer with £55,000 of invoices and £20,000 of costs has qualifying income of £55,000 — not £35,000 of profit. They're over the £50,000 line and in the first wave, even though their actual profit is well under it.

If you've been thinking about the threshold as "what I actually make", recalculate using your gross turnover. It often changes the answer.

Worked examples

Example 1 — Employed plus a side business. Priya earns £60,000 from her PAYE job and £12,000 (gross) from freelance design on the side. Her salary is excluded, so her qualifying income is just the £12,000 of freelance turnover. She's under £20,000 — not in scope for now. The big salary is a red herring.

Example 2 — Full-time freelancer. Tom is self-employed full time with £58,000 of invoices and £15,000 of expenses. His qualifying income is the £58,000 turnover, not his £43,000 profit. He's over £50,000 — mandated from 6 April 2026.

Example 3 — Self-employment plus a little rent. Sarah has £35,000 of consulting turnover and £8,000 of rent from a flat she lets. Combined qualifying income is £43,000. She's in the £30,001–£50,000 band — mandated from 6 April 2027.

When does it apply from, exactly?

If you're in the first wave (over £50,000), MTD for Income Tax starts on 6 April 2026, and your first quarterly update is due 7 August 2026 — covering 6 April to 5 July 2026. After that, quarterly updates fall on 7 August, 7 November, 7 February and 7 May, with a final declaration due the following 31 January. (See MTD quarterly deadlines explained.)

There's a small mercy in year one: 2026/27 is a soft-landing period, so you won't get penalty points for late quarterly updates. But the final declaration (due 31 January 2028) can still be penalised, so don't treat the whole year as optional.

How to check your own status

Add up your gross self-employment turnover and any grossrent, then compare the total to the table above. If you'd rather not do the maths, let a tool do it:

Frequently asked questions

Is the MTD threshold based on profit or turnover?

Turnover. Qualifying income is your gross income before expenses, not your profit. This is the most common misunderstanding.

Does my salary count toward the MTD threshold?

No. PAYE employment income is excluded. Only self-employment and property income count.

Do dividends or savings interest count?

No. Dividends, savings interest and pension income are all excluded from the qualifying-income test.

I'm employed and have a small side business — am I in scope?

Only your self-employment (and any property) income is tested. If that side income is under the threshold, you're not in scope, regardless of how much you earn from your job. More on this in MTD when you're employed and self-employed.

What if I have both self-employment and rental income?

You add them together. The combined gross figure is your qualifying income.

Related guides: MTD when you're employed and self-employed · How to register for MTD as a sole trader · MTD quarterly deadlines explained

Guidance only, not tax advice. Based on HMRC rules as at June 2026. Always check your specific circumstances with HMRC or a qualified adviser.