Making Tax Digital (MTD) is changing how many self-employed people and landlords report their income to HMRC. One important thing to understand is your qualifying income. This amount helps HMRC decide whether you need to follow the MTD rules and when they will apply to you.
So, what is qualifying income for Making Tax Digital? It is the total income from your self-employment and property before you take away allowable expenses.
Working this out is not always easy if you have more than one income source. You need to know which types of income count and which do not. In this guide, we explain what qualifying income means, what income counts, how to calculate it and how it affects your MTD requirements.
Qualifying income is your total income from self-employment and property before expenses are deducted. HMRC also refers to this amount as turnover.
If you have more than one self-employment or property income source, HMRC combines the relevant income to work out your qualifying income.
For example, suppose you have:
Your qualifying income would be £45,000.
Your business expenses are not deducted when working out this figure. Therefore, qualifying income is different from your business profit or taxable income.
This distinction is important because the MTD thresholds are based on qualifying income, not the amount you have left after expenses.
For making tax digital, HMRC generally looks at income from self-employment and property.
Income from your sole-trader or other self-employed business counts towards qualifying income.
This can include income from activities such as:
The amount used is your gross business income before allowable expenses are deducted.
Rental income from property that you own personally can also count.
If you receive income from more than one property, the relevant property income is included when working out your total qualifying income.
For jointly owned property, only your share of the property income generally counts. For example, if a jointly owned property produces £50,000 of income and you receive an equal share, £25,000 would count towards your qualifying income.
You can follow these simple steps to work out your qualifying income.
Start with the gross income from each sole-trader or self-employed business you run.
Do not deduct business expenses at this stage.
If you personally receive rental or other qualifying property income, include the relevant amount.
If you jointly own a property, include your share rather than the property's total income.
Add the relevant self-employment and property income together.
For example:
|
Income source |
Gross income |
|
Self-employment |
£38,000 |
|
Rental property |
£14,000 |
|
Total qualifying income |
£52,000 |
In this example, the qualifying income is £52,000.
Once you know your total qualifying income, compare it with the threshold for the relevant tax year.
Remember that HMRC uses previous Self Assessment information when assessing your qualifying income for MTD. You should also check your own position rather than relying only on an HMRC letter.
HMRC uses information from your Self Assessment tax return to work out your qualifying income.
Generally, HMRC checks the relevant income reported on your tax return for the previous tax year. This helps determine whether you need to use MTD for Income Tax in the following tax year.
For example, the first phase of MTD uses qualifying income reported for the 2024/25 tax year.
If your qualifying income for 2024/25 was more than £50,000, you may need to use MTD from 6 April 2026.
For the next phase, HMRC looks at qualifying income for 2025/26. If it is more than £30,000, MTD applies from 6 April 2027.
If you have income from both self-employment and property, HMRC generally combines these qualifying sources when checking the threshold.
For example:
Although neither source is above £50,000 individually, the combined qualifying income is £52,000.
Therefore, it is important to consider all your qualifying income sources, rather than checking each source separately.
Income such as PAYE wages, dividends and your share of partnership profits is not added to this total.
Your qualifying income can change from one tax year to another.
For example, you may have qualifying income of £55,000 one year and £28,000 the next. Your MTD position can therefore change as your circumstances change.
If you have already started using MTD and your qualifying income falls below the relevant threshold, HMRC has specific rules for when you can stop using the service.
If you stop one source of income but continue another qualifying source, the income from the ceased source may still be included when HMRC assesses your position.
Start by checking your most recent Self Assessment tax return and identify your income from self-employment and property.
Then:
HMRC's guidance can be particularly important if you have jointly owned property, overseas income, partnership income, ceased income sources, a new business or changes to a previously submitted tax return.
Note: This article is for general informational purposes only and does not constitute tax or financial advice. MTD rules can change, so check the latest GOV.UK guidance or speak to a qualified tax adviser about your circumstances.
Understanding your qualifying income and MTD responsibilities can be confusing, especially if you have income from different sources.
PHS Associates can help you understand your Self Assessment and tax requirements. Our team can help you review your income, prepare your tax return and understand your responsibilities under Making Tax Digital. We can also provide accounting and bookkeeping support to help keep your records organised.
For help with your tax requirements, contact PHS Associates on 0208 861 1685 or info@phs-uk.co.uk.
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