Qualifying income for MTD for ITSA

The date from which traders and unincorporated landlords need to comply with Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) depends on the level of their qualifying income. MTD for ITSA becomes a reality for self-employed traders and unincorporated landlords from 6 April 2026 if they had combined gross trading and property income of £50,000 or more in 2024/25. The threshold drops to £30,000 from 6 April 2027 (based on income for 2025/26) and to £20,000 from 6 April 2028 (based on income for 2026/27).

What is included

Qualifying income is total income for a tax year that a person receives from self-employment and property before the deduction of expenses. For example, if a person has income from self-employment of £35,000 and property income of £20,000, their qualifying income will be £55,000. They will be within MTD for ITSA from 6 April 2026 despite the fact that individually both their self-employment and property income are below £50,000.

Once the 2024/25 tax return has been submitted, HMRC will assess a client’s qualifying income and write to them if they are within MTD for ITSA from 6 April 2026. However, it is important to understand what is taken into account, and how to deal with special cases. It is prudent to check HMRC’s calculation is correct. Clients will still need to comply with MTD for ITSA from 6 April 2026 if their qualifying income exceeds the £50,000 threshold even if they do not receive a letter from HMRC.

Ceased income sources

A client may have a source of income in 2024/25 which they do not have in 2025/26 or later tax years. If a client has a source of self-employment or property income in 2025/25 which ceased after they submitted their return, income from that source will be included in their qualifying income if they have another continuing source of self-employment or property income.

The income from the property is taken into account in calculating their qualifying income for 2024/25 as they have a continuing source of self-employment income. As their qualifying income is. More than £50,000, they will be within MTD for ITSA from 6 April 2026, despite the fact that the income from the continuing source was less than £50,000.

However, if all of a client’s sources of self-employment and property income has creased since they submitted their last Self Assessment tax return, they will need to inform HMRC. In this situation, they will not need to use MTD for ITSA.

Falling income

Once a client joins MTD for ITSA they will remain in it unless their income is below the threshold for three consecutive years they choose to opt out. Remember, the threshold drops to £30,000 from 6 April 2027 and to £20,000 from 6 April 2028.

Amended returns

 Where amendments are made to a client’s tax return, this may affect whether they are within MTD for ITSA or not. An amendment may increase their qualifying income to above the threshold or drop their qualifying income to below the threshold.

HMRC will check amended returns to see if the changes affect the client’s qualifying income and their MTD for start date. However, if a return is amended after the start date. However, if a return is amended after the start of a relevant tax year and the amendment takes qualifying income above the MTD threshold, the client will not be within MTD for ITSA for that tax year.

If in June 2026 and amended return is filed which increases the client’s income from self-employment to £51,000, the client’s income from self-employment to £51,000, the client will not be bought within MTD for 2026/27 as the tax year has already started despite the fact that his qualifying income for 2024/25 is above the threshold.

Long or short accounting periods

 Where accounts are prepared for a period other than 12 months, an annualised qualifying income figure will be used to determine whether a trader or landlord is within MTD for ITSA. This approach will be used to determine a trader’s qualifying income in the year in which they started trading.

Income from jointly-owned property

 Many landlords’ own property jointly, for example, with a spouse or civil partner. In determining each person’s qualifying income, only their share is taken into account.

VAT registered businesses using the cash basis 

Businesses that are VAT registered and which use the cash basis can choose whether to include or exclude VAT when they declare their business income. If they opt to include it, it will be taken into account when calculating their qualifying income. This may bring them within MTD for ITSA from an earlier date than if they opt to exclude it.

Transition profits

The move to the tax year basis of assessment may mean that where a sole trader does not have an accounting date equivalent to the tax year, they have transition profits which are assessed in 2025/25 and the following four tax years. When calculating qualifying income, transition profits are ignored.