Author: Holly Dyson

Making tax digital sole traders need to know one thing above all else: it’s your gross income that counts, not your profit — and that catches a lot of people out. Here’s exactly how the thresholds work, and the specific situations that trip up sole traders in particular.

The three thresholds

• From 6 April 2026 — if your gross income from self-employment and/or property was over £50,000 in the 2024/25 tax year, you need to join.
• From 6 April 2027 — the threshold drops to £30,000, based on your 2025/26 income.
• From 6 April 2028 — it drops again to £20,000, based on your 2026/27 income.

Your start date depends on the income you earned in the relevant prior tax year, not what you’re earning now. If you’re currently below the threshold but expect to cross it later, you’ll simply be brought in at that later phase.

It’s turnover, not profit — and this genuinely surprises people

This is the biggest trap for sole traders specifically. Your “qualifying income” is your gross turnover — the total money coming into the business before you deduct any expenses, stock costs, or allowances. It is not your taxable profit.

So if your business brings in £58,000 in sales but your actual profit after expenses is only £34,000, it’s the £58,000 figure that gets checked against the threshold — not the £34,000. Plenty of sole traders assume they’re safely under because their profit is modest, only to find their turnover puts them straight into MTD.

Running more than one sole trader business?

If you have more than one sole trader business — say, a tradesperson who also sells goods online under a different name — HMRC adds the qualifying income from all of them together. You can’t treat each business separately to stay under the threshold; it’s your combined trading income that counts.

Importantly, once you are in MTD, you still submit separate quarterly updates for each business — the combined figure only decides whether you’re in the system, not how you report once you’re there.

Side income and small side hustles

If you’re employed but also run a small side business, that self-employment income still counts towards your qualifying income — even if it’s not your main source of income. The test HMRC uses is simply whether the income needs to go on a Self Assessment return, not how significant it is to you personally.

There’s one useful exception: HMRC’s £1,000 trading allowance means you don’t need to report self-employment income under £1,000 on a Self Assessment return at all — so very small, occasional side income can sit outside MTD entirely. But be careful: if your turnover is already above the threshold, you can’t use the £1,000 allowance to bring yourself back under it. The allowance only helps if your income genuinely is that low to begin with.

Sole trader income plus a rental property

If you’re self-employed and also a landlord, HMRC combines your self-employment turnover and your gross rental income to test against the threshold. So a sole trader earning £32,000 and receiving £22,000 in rent has combined qualifying income of £54,000 — over the Phase 1 threshold, even though neither figure alone reaches £50,000.

(This is general guidance, not personalised advice — if you’re unsure how your specific situation is assessed, HMRC’s own online checker or a qualified accountant can confirm your exact position.)

Making tax digital qualifying income is the single figure that decides whether — and when — you need to join MTD for Income Tax. Get this wrong and you could think you’re safely under the threshold when you’re not, or vice versa. Here’s exactly what counts, what doesn’t, and the details that catch people out.

The basic definition

Qualifying income is your gross income — before any expenses, allowances, or costs are deducted — from two sources combined:

• Self-employment income (sole trader trading income)
• UK property income (rental income from letting property)

HMRC adds these two together to get your total qualifying income, then checks that figure against the relevant threshold for the tax year.

It’s gross income, not profit

This is the point that trips up the most people. Your qualifying income is your turnover — the total money your business brought in — not what’s left after expenses, stock costs, mortgage interest, or any other deductions.

So a landlord with £45,000 in rent but only £20,000 left after mortgage interest and letting agent fees is still assessed on the £45,000 figure. A sole trader with £60,000 in sales but £25,000 profit after costs is assessed on the £60,000. Your actual tax bill is still based on your profit — but whether you need to join MTD at all is based on the gross figure.

What’s included

• Self-employment/sole trader trading income (gross, before expenses)
• UK property/rental income (gross, before expenses)
• Income from multiple sole trader businesses, added together
• Income from multiple rental properties, added together
• Your share of jointly owned property income (not the total — just your portion)

What’s excluded

• Employment income taxed under PAYE
• Pension income
• Dividends, including dividends from your own limited company
• Savings and investment income
• Foreign income that isn’t UK property (though foreign property income can count for UK residents — this gets more complex, so check your specific situation if this applies to you)

Combining self-employment and property income

If you’re both self-employed and a landlord, your two income sources are added together for the threshold test — even if neither one alone would put you over the limit. For example, £32,000 in self-employment income plus £22,000 in rental income gives combined qualifying income of £54,000, which is over the £50,000 Phase 1 threshold, even though neither figure alone reaches it.

Once you’re in MTD, though, each income source is reported separately — the combined figure only decides whether you’re in, not how you file once you are.

The £1,000 trading allowance — a genuine exception

If your total self-employment income is under £1,000, HMRC’s trading allowance means you don’t need to declare it on a Self Assessment return at all, and it falls outside MTD entirely. This is really only relevant for very small, occasional side income — and importantly, it doesn’t work as a way to reduce a larger figure. If your turnover is £52,000, you can’t subtract the £1,000 allowance to bring yourself under £50,000.

Which tax year’s income actually matters?

HMRC checks your qualifying income for a specific prior tax year to decide your start date:

• 2024/25 income determines whether you join from April 2026
• 2025/26 income determines whether you join from April 2027
• 2026/27 income determines whether you join from April 2028

Once your income for the relevant year is known (from your filed Self Assessment return), your start date is fixed — a change in your income the following year doesn’t move that start date, though it may affect a later threshold check if you weren’t caught by an earlier one.

(This is general guidance, not personalised advice — for anything specific to your situation, HMRC’s own online checker or a qualified accountant can confirm exactly how your income is assessed.)

Making tax digital landlords need to know one thing above all else: which income threshold applies to them, and when. The rules are being rolled out in three phases based purely on how much you earn — not by when you register or what type of landlord you are. Here’s exactly how it works.

The three thresholds

• From 6 April 2026 — if your gross income from self-employment and/or property was over £50,000 in the 2024/25 tax year, you need to join.
• From 6 April 2027 — the threshold drops to £30,000, based on your 2025/26 income.
• From 6 April 2028 — it drops again to £20,000, basincoed on your 2026/27 income.

The key thing to understand: it’s your income in the relevant prior tax year that decides your start date, not your income right now. So if you’re currently under £50,000 but expect to cross £30,000 or £20,000 in future years, you’ll be brought in at that later phase — not before.

What counts towards the threshold?

Your “qualifying income” is the gross income (before expenses) from self-employment and property combined — not profit. So if you have both a rental property and a side business, HMRC adds the two together, not treated separately. Importantly, PAYE income, dividends, and pension income don’t count at all.

Jointly owned property?

Only your share of the rental income counts — not the total. So if you jointly own a property with your spouse and the total rent is £60,000, but you each receive £30,000, that’s what gets checked against the threshold — not the combined figure.

What if I’m not sure which phase applies to me?

Check your most recent filed tax return. If your gross income from self-employment/property was over £50,000 for 2024/25, you’re in from April 2026. If not, check again next year against the £30,000 threshold for 2025/26, and again the year after for £20,000.

Common questions from making tax digital landlords

What happens if I miss my MTD start date? If you’re required to join and don’t, HMRC can still expect quarterly updates from your mandatory start date — penalties are based on a new points system, with a fine issued once you accumulate four points for missed submissions. It’s worth setting up compatible software before your start date arrives, not after.

Do pensions or PAYE income count towards the threshold? No. Only income from self-employment and property (before expenses) counts. Employment income taxed under PAYE, pension income, and dividends are excluded entirely from the qualifying income calculation.

Can I join voluntarily before I’m required to? Yes — if your income is below the mandatory threshold, you can opt into Making Tax Digital voluntarily. Some landlords choose to do this to get used to the quarterly reporting process ahead of their actual mandatory start date.

What if my income changes partway through a tax year? Your start date is fixed based on a completed tax year’s income, checked once a year — a mid-year change in earnings doesn’t move your start date forward or back; it simply affects which threshold you’re measured against for the following year.

(This is general guidance, not personalised advice — if you’re unsure, HMRC’s own online checker or a qualified accountant can confirm your exact situation.)