What counts as qualifying income for Making Tax Digital for income tax?

What is Making Tax Digital for income tax?

Making Tax Digital (MTD) was first announced by the Government in 2015 as part of an overall strategy for the digitalisation of tax in the UK. It first came into effect for Value Added Tax (VAT) from 2019 and begins for income tax on 6th April 2026 for those with £50,000 of more qualifying income based on  2024/25 tax returns. MTD for income tax will introduce taxpayers to quarterly updates via MTD-compliant software followed a tax return (also filed via MTD-compliant software) following the end of the tax year.  

For those taxpayers within Making Tax Digital for income tax, it will replace self-assessment tax returns – however when first joining MTD for income tax there will still be a self-assessment tax return for the prior tax year to file. 

Why does qualifying income matter? 

Qualifying income matters because landlords and the self-employed will join MTD for income tax in stages, based on qualifying income from the last-but-one tax year. For details on the relevant qualifying income thresholds, see the table in this article.  

The first taxpayers who must join Making Tax Digital for income tax are those with qualifying income of £50,000 or more in their 2024/25 self-assessment tax return. They must begin MTD for income tax from 6th April 2026. 

You therefore need to know how to calculate your qualifying income to understand if and when you need to join MTD for income tax. 

What does HMRC mean by qualifying income?  

HMRC’s definition of qualifying income is your income from: 

• Self-employment i.e. income as a sole trader, and 
• Property income i.e. rental income as a landlord. 

Qualifying income is your gross income from these two sources added together if you have both and is not your profits. You do not take off any allowances, expenses or reliefs when calculating qualifying income.  

You also do not include income from other sources. 

Which types of income count towards the qualifying income thresholds?  

While only self-employment and property income is counted for qualifying income, HMRC is continually updating its guidance on dealing with more complicated financial affairs. 

Multiple income streams  

If you have more than one source of qualifying income and one ends, that income source is still counted towards qualifying income so long as another income stream continues. If all sources of qualifying income end before you join Making Tax Digital for income tax, you won’t need to join MTD for income tax. However, you should inform HMRC to avoid any penalty points being awarded for failing to make quarterly updates. 

Amending your self-assessment tax return 

If: 

• you file your self-assessment tax return and are not above the MTD threshold (e.g. £50,000 for your 2024/25 tax return), 
• later amend your return after the start date for MTD for income tax (e.g. 6th April 2026 for the 2026/27 tax year), 
• such that qualifying income is increased above the threshold, then 

 you will not have to join MTD for income tax for that year (2026/27). 

Long or short accounting periods  

If HMRC have sufficient data, they will annualise your self-employment and/or property income to assess your qualifying income.  

For example: 

• You started trading on 6th December 2024. 
• You had income of £10,000 over the five months of the 2024/25 tax year. 
• Your annualised income is £24,000. 

You would not be required to join MTD for income tax for 2026/27. 

Cash basis  

If you prepare your accounts using the cash basis you need to choose whether to include or exclude VAT on income. If you include it, the VAT will count towards qualifying income. 

Other 

• Disguised investment management fees 
• Income-based carried interest  
• Bare trust income from a trade or property 
• Interest in possession trust income – if paid direct to the beneficiary only 
• Non-residents – self-employment income from dealing or developing UK land 

What does not count as qualifying income?  

The following sources of income do not count towards qualifying income: 

• PAYE employment income  
• Pensions  
• Dividends  
• Savings interest  
• Capital gains made from selling assets 
• Partnership income and profit share 
• Basis period reform transitional profits 
• Qualifying carer income received by foster and shared live carers 
• REIT and PAIFs – income from UK Real Estate Investment Trusts or Property Authorised Investment Funds 
• Non-residents – overseas property 

Are there are kinds of income specific to landlords? 

If you own property jointly with another person, only your share of the income counts towards your qualifying income. Qualifying income is per individual and not per business. 

Under the transaction in land rules, if there is a continuing source of income arising over more than one tax year it will count as qualifying income. 

Where can I get more help?  

TaxAssist Accountants are highly experienced in helping clients prepare for MTD for income tax. We can help you assess your qualifying income, undertake MTD readiness reviews, give you software guidance and support you with quarterly updates. Call us on 01480 592002 or use our online contact form. 

 

Last updated: 16th February 2026