What counts as qualifying income for MTD ITSA?

What HMRC counts as qualifying income

Qualifying income is the total gross income from self-employment and property, before expenses or tax deductions, combined across all businesses. It is gross turnover, not taxable profit. UK and overseas self-employment and property income both count if you are UK-resident or UK-domiciled.

It does not include PAYE employment income, savings interest, dividends, pensions, capital gains, or other Self Assessment sources. Those still go on your tax return but they do not count toward the threshold.

How mixed income aggregates

If you have both self-employment income and property income, the threshold test adds them together. A sole trader with £35,000 of self-employment turnover and £20,000 of gross rental income has qualifying income of £55,000 - in scope from April 2026.

HMRC uses qualifying income from the most recent filed tax return before the mandate date:

• April 2026 mandate, based on the 2024-25 return (due 31 Jan 2026)
• April 2027 mandate, based on the 2025-26 return (due 31 Jan 2027)
• April 2028 mandate, based on the 2026-27 return (due 31 Jan 2028)

If the reference period is less than 12 months, income is adjusted proportionally.

The threshold cohorts

The £20,000 threshold was announced at Spring Statement 2025.

What happens if your income drops below the threshold

Once mandated, a taxpayer stays in MTD ITSA even if income drops below the relevant threshold, unless they opt out. The opt-out is available after three consecutive tax yearsbelow the applicable threshold, and there is no obligation to opt out.

Practically, that means a one-off bad year does not remove you from MTD; you stay in the regime and keep sending quarterly updates and submit a tax return each year.

Who is out of scope

Qualifying income only covers individuals with self-employment and property income. Some groups are outside MTD for Income Tax for now or permanently:

• Partnerships are not included yet, and no date has been set. Partnership income does not count toward an individual partner's own threshold.
• Companies, trusts and estates are not in scope.
• People who file the SA109 pages (residence, remittance basis) are deferred to at least April 2027.
• Lloyd's underwriters and certain collective investment scheme property income are excluded.
• Anyone below the relevant threshold.

Part-year income: annualising

If a source only ran for part of the reference year - because you started part-way through - HMRC scales it up to a full year to test the threshold. HMRC's own example: if you became a sole trader and only traded for six months, your income is doubled to find your qualifying income.

For a sole trade, HMRC annualises automatically if it has your accounting-period dates. For property income, you have to annualise it yourself - the implied method is income divided by the months active, multiplied by twelve. This annualising rule is for new (commencement) sources only; do not assume it scales a long or changed accounting period down, as HMRC publishes no method for that - check with HMRC or an accountant.

Income sources that have ceased

A self-employment or property source that has stopped since your last tax return still counts toward qualifying income - at its actual amount, not annualised - but only if you have another continuing self-employment or property source.

If all your self-employment and property sources have ceased, you do not need MTD for Income Tax, but you must tell HMRC - they will not remove you automatically. You would still file a Self Assessment return if you are otherwise required to.

Two quick worked examples

Employee with a side trade. You earn £45,000 from a PAYE job and £12,000 gross from a weekend trade. Only the £12,000 is qualifying income, so you are below every current threshold and not yet mandated - the employment salary does not count.

Landlord just over the line. You have £28,000 of gross rent and £6,000 of gross freelance income. Combined qualifying income is £34,000, which brings you in from April 2027 (the £30,000 threshold), even though neither source alone would.

Common questions

Can I sign up for Making Tax Digital before I have to?

Yes. You can join Making Tax Digital for Income Tax voluntarily before your mandation date. While you are taking part voluntarily, the late submission penalty threshold is 2 points rather than 4, so it is worth getting used to the quarterly rhythm before it becomes compulsory.

I started my business after the reference tax year - am I in scope?

HMRC works out your qualifying income from your most recently filed tax return. If you started trading after that reference year, you will usually have little or no qualifying income on it, so that year does not bring you into scope. As you file later returns HMRC reassesses, so your start date can move. Check your own figures with the MTD Start Date Checker.

Does my employment or PAYE salary count toward qualifying income?

No. Qualifying income is your gross income from self-employment and property only. Employment or PAYE salary, savings interest, dividends and pensions are excluded, even though they still appear on your Self Assessment return.

Related reading

Once you know you are in scope, see thequarterly update and tax return deadlines and the answer towhether you can keep your spreadsheet. Apply these rules to your own figures with the MTD Start Date Checker, or return to the aligned.tax homepage.