MTD Guides

Qualifying Income for MTD ITSA: What Counts and What Doesn't

6 min read

If you're a sole trader or landlord trying to work out whether Making Tax Digital for Income Tax (MTD ITSA) applies to you from April 2026, the question turns on two words: qualifying income. Get this number right, and you know exactly when you have to start submitting quarterly updates. Get it wrong, and you either join the regime late (penalties on the way in) or volunteer for it early (compliance work you didn't need to do).

This guide walks through what HMRC actually means by qualifying income, what it includes, what it leaves out, and how to work yours out from the records you already keep.

The headline rule

From 6 April 2026, MTD ITSA is mandatory for sole traders and landlords whose qualifying income for the 2024/25 tax year was more than £50,000. The threshold drops to £30,000 from April 2027 and £20,000 from April 2028.

Two things to notice straight away:

The £50,000 is measured against gross income before expenses, not your taxable profit.
HMRC looks at the figures from your 2024/25 self-assessment return (the one filed by 31 January 2026) to decide whether you are in the first wave.

What counts as qualifying income

Qualifying income is the combined gross income from two specific sources:

Self-employment — turnover from any sole trader business you run, before deducting expenses, capital allowances or losses.
Property — gross rental income from UK and overseas property businesses, before deducting allowable expenses, finance costs or the property income allowance.

If you have both, you add them together. A landlord with £35,000 gross rents and a sole trader side business of £20,000 turnover has qualifying income of £55,000 — over the threshold, in scope from April 2026.

What HMRC explicitly excludes

This is where most people miscalculate. The following are not qualifying income for MTD ITSA, even though they appear on your self-assessment return:

Employment income (PAYE salary)
Pension income (state, occupational or private)
Dividend income
Bank and building society interest
Capital gains
Partnership profits (handled under separate rules — see below)
Foreign income that isn't from a property business

So a sole trader earning £40,000 from self-employment plus £30,000 from a part-time PAYE job has qualifying income of £40,000 — under the threshold, despite total income of £70,000. That same person doesn't enter MTD ITSA in April 2026.

The partnerships question

Income from a partnership is excluded from your individual qualifying income calculation in the first wave. Partnerships will be brought into MTD ITSA on a separate timetable, which HMRC has not yet finalised. If you are also a sole trader or landlord alongside the partnership, only your sole-trader and property income counts toward the £50,000 test for now.

How to work yours out from your 2024/25 return

The simplest way is to pull two lines straight off your 2024/25 self-assessment:

SA103 (Self-employment) — Box 9 or Box 15: turnover before expenses.
SA105 (UK property) — Box 20, plus SA106 (Foreign) Box 14 if you have overseas rental: gross rents received.

Add them. If the total exceeds £50,000, MTD ITSA applies from 6 April 2026. If it's between £30,000 and £50,000, you have until April 2027. Below £30,000 (but above £20,000), April 2028.

Edge cases worth flagging

You started self-employment mid-year. The £50,000 test is based on the full 2024/25 figure, not annualised. A sole trader who began trading in January 2025 with £15,000 turnover for the part-year is below the threshold, even if the annualised equivalent would be much higher.

You had a one-off year above £50,000. HMRC uses a single year's figure to determine entry. Once you're in the regime, exiting requires three consecutive years below the threshold, so a single spike pulls you in for at least four years.

Your figures change after you've filed. If you amend your 2024/25 return after HMRC has confirmed your MTD entry, the entry stands unless the amendment changes whether you cross the threshold. Worth confirming with HMRC directly if your figures sit close to £50,000.

What this means for your records

If you're in scope for April 2026, the practical implication is that from 6 April 2026 onwards every transaction in your sole-trader or property business needs to be in digital records — meaning a spreadsheet, accounting software, or app, not a paper notebook. The figures then get summarised and submitted to HMRC every quarter through MTD-compatible software.

The good news: HMRC explicitly allows spreadsheets as digital records, provided the data flows through to the bridging tool via digital links (no manual re-keying). The vast majority of sole traders and landlords already keep spreadsheets — the work is in standardising the layout so the quarterly summary is straightforward to produce.

If you're close to the threshold

For anyone whose 2024/25 qualifying income lands between £45,000 and £55,000, it's worth doing the calculation now rather than waiting for an HMRC letter. If you're just above, you have roughly two months to set up a quarterly workflow before live data starts piling up. If you're just below, you have an extra year — but the threshold drops to £30,000 in April 2027, so the runway is shorter than it looks.

For the spreadsheet clean-up step specifically — turning a year's worth of transactions into a clean quarterly summary that imports into any bridging tool without manual fixing — we built TaxPrepUK. Browser-only, AI-assisted categorisation, and free to try on your existing spreadsheet before MTD goes live.