What Income Counts Towards the MTD Threshold? —
Pension, PAYE, Dividends, Rental: Answered
Counts towards MTD
Never counts (context only)
The single most common question about Making Tax Digital for Income Tax is: does my income count towards the threshold? For many people, those with pensions, PAYE jobs, dividends, and savings, the answer is no. For sole traders and landlords, the answer is yes. Getting this wrong in either direction costs you — either by registering unnecessarily or by missing a legal obligation.
This guide covers every income type individually, with the exact HMRC rule and practical examples.
Quick Reference — What Counts and What Doesn't
Self-Employment Income — Counts in Full
Your gross self-employment turnover counts in full — this is the total you earned before deducting any business expenses. It is the same figure you report as trading income on your Self Assessment return.
What this means in practice: A freelance designer who invoiced £62,000 in 2024–25 has £62,000 qualifying income — even if their net profit after business costs was only £38,000. The £38,000 profit figure is what HMRC taxes, but the £62,000 gross is what determines whether MTD applies.
Multiple self-employment businesses
If you run more than one self-employed business, for example, you are both a driving instructor and a music tutor — your qualifying income is the combined gross turnover of all your self-employment activities. Each business is reported separately in MTD quarterly updates, but the totals are combined for threshold purposes.
UK Rental Income — Counts in Full
UK property rental income counts towards the MTD threshold, measured as gross rent received before expenses. Expenses such as mortgage interest, repairs, letting agent fees, and insurance do not reduce your qualifying income for threshold purposes.
Joint property, married couples and co-owners
If you own a rental property jointly, each owner is assessed on their own share only. Thresholds are never pooled between co-owners.
- 50/50 couple with £110,000 total gross rental: each has £55,000 qualifying income — both are in Phase 1 (April 2026)
- 90/10 split on £60,000: one owner has £54,000 (Phase 1), the other has £6,000 (below all current thresholds)
Married couples default to a 50/50 split. If your actual beneficial interests differ, declare this to HMRC using Form 17 before the relevant tax year.
Furnished Holiday Lets (post-April 2025)
From 6 April 2025, the special FHL tax regime was abolished. Furnished Holiday Lets are now treated as ordinary property income for all tax purposes, including MTD. Your FHL gross receipts count towards your MTD qualifying income in exactly the same way as any other rental income.
Gig Economy Income — Gross Platform Earnings Count
Income from gig platforms — Uber, Bolt, Deliveroo, Just Eat, Etsy, eBay, Airbnb, TaskRabbit, and others — counts as self-employment income for MTD purposes. The threshold uses gross earnings before platform commission, not the amount you receive in your bank account.
| Platform | What Counts | What Doesn't Count |
|---|---|---|
| Uber / Bolt | Gross trip value processed | Platform commission, vehicle costs, fuel |
| Deliveroo / Just Eat | Gross delivery earnings | Platform fee, mileage costs |
| Etsy / eBay | Gross sales revenue | Listing fees, postage, materials |
| Airbnb | Gross rental receipts (above £7,500) | Platform service fee, cleaning costs |
| Fiverr / Upwork | Gross fees before platform commission | Platform percentage, software costs |
Pension Income — Does Not Count
No pension income counts towards the MTD threshold. This is one of the most common sources of confusion, and the answer is clear and absolute.
The following are all excluded, regardless of the amount:
- State Pension (new state pension and basic state pension)
- Private and workplace pensions (defined benefit and defined contribution)
- Self-invested personal pensions (SIPPs) in drawdown
- Annuities
- Pension lump sums
Practical example: A retired person receiving £28,000 per year in pension income has zero MTD obligation, regardless of the amount. The same person who also rents out a property earning £55,000 gross in rental income is above the Phase 1 threshold — the rental income alone triggers the obligation, not the pension.
PAYE Employment Income — Does Not Count
PAYE salary and wages are explicitly excluded from the MTD qualifying income calculation. This applies regardless of how high your salary is.
Why? PAYE income is already reported to HMRC in real time by your employer via payroll. MTD ITSA is specifically designed to bring self-employment and rental income, which HMRC previously only learned about once a year via Self Assessment — into a more regular reporting cycle. PAYE income is already reported regularly and so is excluded.
Common scenario: A hospital consultant earning £120,000 PAYE salary who also has a small private practice earning £45,000 gross has £45,000 qualifying income — below the current £50,000 Phase 1 threshold. They are not yet required to register for MTD. (They will be in Phase 2 in April 2027 if the private practice income still exceeds £30,000 in 2025–26.)
Dividend Income — Does Not Count
Dividends are excluded from the MTD qualifying income calculation — including dividends from your own limited company. Many company directors pay themselves a combination of salary (PAYE) and dividends. Neither element counts towards the MTD threshold.
Exception to be aware of: If you also have personal self-employment income or rental income above the threshold, that separate income triggers MTD — regardless of what dividends you receive. The dividends themselves remain excluded.
Savings Interest — Does Not Count
Interest from bank accounts, cash ISAs, NS&I, bonds, and other savings products is excluded from the MTD qualifying income calculation. This is true regardless of how much interest you receive.
Capital Gains — Do Not Count
Capital gains from selling assets, property, shares, cryptocurrency, business assets — are excluded from the MTD qualifying income calculation. Note that selling a rental property may trigger a separate Capital Gains Tax reporting obligation, but the gain itself does not affect your MTD threshold.
Overseas Rental Income — Does Not Count (Currently)
For UK tax residents, foreign property income counts towards the MTD qualifying income calculation (HMRC guidance). Non-UK residents are assessed on UK property income and self-employment declared on their UK return. Only property rental income counts (foreign property too, if you are a UK tax resident). If you own rental property abroad, in Spain, Portugal, France, or anywhere else — that income does not count towards your MTD threshold under current legislation.
CIS Sub-Contracting Income — Counts (Gross)
Construction Industry Scheme (CIS) sub-contractors must use their gross income before any CIS deductions at source. If your contractor deducts 20% or 30% at source, that deduction is a tax payment — it does not reduce your qualifying income for MTD threshold purposes.
A CIS sub-contractor with £55,000 gross earnings, even if the contractor deducted £11,000 at source leaving £44,000 net — has £55,000 qualifying income and is in Phase 1.
Worked Examples
| Person | Income Sources | Qualifying Income | MTD Status |
|---|---|---|---|
| Freelance designer | £62,000 self-employment + £40,000 PAYE | £62,000 | Phase 1. April 2026 |
| Retired landlord | £28,000 pension + £58,000 gross rental | £58,000 | Phase 1. April 2026 |
| Company director | £80,000 PAYE + £25,000 dividends | £0 | Not in scope |
| Uber driver + part-time PAYE | £52,000 gross Uber + £18,000 PAYE | £52,000 | Phase 1. April 2026 |
| Landlord (50/50 joint) | £90,000 total rental, 50/50 split | £45,000 each | Phase 2. April 2027 |
| Sole trader (growing) | £38,000 self-employment + £5,000 savings interest | £38,000 | Phase 2. April 2027 |
| PAYE nurse + small rental | £55,000 PAYE + £18,000 gross rental | £18,000 | Phase 3. April 2028 |
Frequently Asked Questions
Does pension income count towards the MTD threshold?
No. State pension, private pensions, SIPPs, annuities and drawdown income are completely excluded from the MTD qualifying income calculation. No pension income of any amount creates a MTD ITSA obligation on its own.
Does PAYE salary count towards the MTD threshold?
No. PAYE employment income is explicitly excluded from the MTD qualifying income calculation, regardless of the salary level. Only self-employment and property income count (UK property, plus foreign property if you are a UK tax resident).
Do dividends count towards the MTD threshold?
No. Dividend income is excluded from the MTD qualifying income calculation — including dividends from your own limited company, investment dividends, and investment trust distributions.
Does Airbnb income count if I use Rent a Room relief?
Yes — but only the amount above £7,500. If you let a room in your own home through Airbnb and earn less than £7,500 per year, the entire amount is exempt under Rent a Room relief and does not count. If you earn more than £7,500, the excess above £7,500 counts as self-employment income towards your MTD threshold.
If I have both self-employment and rental income, are they added together?
Yes. Your qualifying income for MTD is the combined total of all your self-employment gross turnover and UK property rental gross receipts. A sole trader with £28,000 in self-employment income and £25,000 in rental income has £53,000 qualifying income — above the Phase 1 threshold.
Does profit count or gross income?
Gross income. Always. The MTD threshold is based on gross income before expenses, not net profit. A sole trader with £55,000 gross turnover and £30,000 business expenses has a taxable profit of £25,000, but their qualifying income for the MTD threshold is still £55,000.
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