What is Qualifying Income for MTD?

This question is becoming increasingly relevant for landlords and self-employed individuals as the UK prepares to roll out Making Tax Digital (MTD) for Income Tax. Understanding what constitutes qualifying income for MTD is crucial for determining whether you need to comply with the digital tax requirements and when you must start using MTD-compatible software. Qualifying income refers to the total income you receive from self-employment and property in a tax year, before deducting any expenses.

If your qualifying income is above the threshold set by HMRC, you are required to keep digital records and submit quarterly updates and final declaration through MTD-compatible software. If your qualifying income is below the threshold, you can continue with the current Self-Assessment system, unless you voluntarily decide to join MTD. This guide explains what counts as qualifying income for MTD, which boxes in the Self-Assessment forms HMRC examines, and how expenses are treated under the new digital requirements.

Which Income Sources Count Toward Qualifying Income for MTD?

When determining what is qualifying income for MTD, only two primary sources are included:

What Income Does Not Count Towards Qualifying Income?

Not all the income you declare in your Self Assessment Tax Return forms part of qualifying income. HMRC specifically excludes several other income types from the MTD test, such as:

If you are affected by basis period reform and have transition profits spread over several years, those transition profits do not count either.

How Does HMRC Decide If I Need to Join MTD?

Understanding what qualifies as income for MTD also means knowing the timing requirements. HMRC does not look at your current year’s income while you are earning it. Instead, it checks your Self Assessment Tax Return from the previous year. HMRC applies the “current year minus two” (CY-2) rule to decide when you must join MTD. This means your eligibility is assessed using income reported on your tax return from two years earlier.

This rule ensures that MTD entry is predictable and based on verified tax return data, giving you time to plan rather than being triggered by sudden income changes in the current year.

Which Boxes on the Self Assessment Form are for Qualifying Income for Self-Employed People?

On the self-employment pages of the Self Assessment Tax Return, HMRC checks the turnover and other income boxes. If you are using the full self-employment pages (SA103F), the relevant boxes are Box 15, which shows turnover, and Box 16, which shows other income. If you are using the short version of the self-employment pages (SA103S), the relevant boxes are Box 9 for turnover and Box 10 for other income. If you file the short paper return (SA200), the equivalent figure is in Box 3.6.

SA103F Self-Employment Income

SA103S Self-Employment Income

Which Boxes on the Self Assessment Form are for Qualifying Income for Landlords?

On the property pages (SA105 and SA106), the qualifying income boxes are Box 20 for UK property income, Box 22 for lease premiums, and Box 23 for reverse premiums. If you have overseas property income, Box 14 on SA106 is used for foreign property income and Box 16 on SA106 is used for foreign lease premiums. If you file the short paper return (SA200), the equivalent figure for UK property income is in Box 6.1.

SA105 UK Property Income

SA106 Foreign Property Income

HMRC totals the figures from these boxes to assess whether you cross the qualifying income threshold. 

Do Expenses Affect Qualifying Income for MTD?

While qualifying income for MTD is calculated based on gross income before expenses, understanding allowable and disallowable expenses remains crucial for MTD compliance.

The expenses don’t reduce qualifying income for the MTD test. However, expenses are still very important because they reduce your taxable profit. Under MTD, you will need to record your expenses digitally and report them on a quarterly basis.

Why Expense Categorisation Matters More Under MTD

Landlords and self-employed individuals will continue using these familiar expense categories but will need to capture and report them quarterly rather than annually. The expense types don't change; only the timing of reporting them to HMRC. 

Under MTD, expense management and categorisation become more complex and important because:

Which Boxes on the Self Assessment Form are Used for Expenses for the Self-Employed?

Currently, self-employed individuals report their expenses on the self-employment pages (SA103F or SA103S) using established expense categories. These same categories will form the foundation of MTD quarterly reporting, ensuring a smooth transition from annual to quarterly submissions. 

If you are self-employed, your expenses are reported on the self-employment pages of the Self Assessment. HMRC expects you to break them down into categories. These include the cost of goods bought for resale, staff wages and salaries, and travel expenses such as car and van costs. You must also declare expenses such as rent for business premises, business rates, power, and insurance. 

Other categories include repairs and maintenance costs, office supplies such as stationery and phone costs, advertising, and certain forms of entertainment. Interest and finance charges, bad debts, legal fees, and professional fees are also included as allowable categories. If you have other expenses that do not fit into these headings, you can include them in the box for other business expenses. 

The SA103F (full pages) and SA103S (short pages) break expenses into the categories that MTD will require, as shown in the part of the respective forms below:

SA103F Business Expense Section

SA103S Business Expense Section

Which Boxes on the Self Assessment form are Used for Expenses for Landlords?

Property landlords currently use SA105 (UK property) and SA106 (foreign property) to report their rental expenses in established categories. These same expense categories will continue under MTD quarterly reporting. 

If you are a landlord, expenses are reported on the property pages. These include loan interest and other finance costs, though restrictions apply for residential properties. You also report repair and maintenance costs, insurance premiums, and ground rents. Where you, as the landlord, are responsible for utilities such as council tax, gas, electricity, or water, you must also record these. 

Other expense categories include legal and professional fees, management fees, and the cost of services provided to tenants. Examples are cleaning, gardening, or porter services. Finally, there is a category for other property expenses where you can include costs that do not fall into the main categories. 

The SA105 and SA106 break property expenses into the categories that MTD will require, as shown in the part of the respective forms below:

SA105(UK Property) Expense Section

 SA106(Foreign Property) Expense Section

What Types of Expenses aren’t Allowable?

Not all expenses can be deducted. The fundamental rules about disallowable expenses remain consistent between the current Self Assessment and MTD systems for landlords and self-employed individuals: 

These are the list of disallowable Expenses:

Conclusion

At its core, the question of what is qualifying income shapes the entire journey into Making Tax Digital for Income Tax. For landlords and the self-employed, it determines not only when MTD applies but also how day-to-day finances will need to be tracked. Unlike profits, which reflect what you keep after expenses, qualifying income measures the gross flow of money from self-employment and property before deductions. 

Although expenses do not change whether you cross the qualifying income threshold, they remain central to your tax position. They reduce your taxable profit and must be reported in a structured way under MTD. Understanding both income and expense reporting ensures you meet your obligations and remain compliant. 

By getting used to digital record keeping and categorising your income and expenses correctly, you will be well prepared for MTD. First, check if and when you need to comply with MTD with our checklist. This will reduce stress, keep you on the right side of HMRC, and give you a clearer understanding of your finances.

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