What Income Counts Towards the MTD for Income Tax Threshold?

Understanding the MTD for Income Tax Threshold and Why “What Counts as Income” Matters

Making Tax Digital (MTD) for Income Tax is designed to change how many self-employed people and landlords keep records and report their earnings to HMRC. Instead of sending one annual tax return and dealing with everything at year-end, MTD introduces digital record keeping and more frequent updates. The result is that one question suddenly becomes far more important than it used to be: what income counts towards the MTD for Income Tax threshold?

This matters because the threshold determines whether you will fall within the MTD for Income Tax rules in the first place. If your income is above the threshold, you may need to keep digital records and send updates using MTD-compatible software. If it’s below the threshold, you may not be required to comply (though you may still choose to adopt digital tools voluntarily to make life easier).

In this guide, we’ll walk through the types of income that typically count towards the threshold, which types often don’t, and the practical steps you can take to stay organised. Throughout, we’ll focus on a simple goal: helping you track your income accurately and stay compliant with minimal stress. And because this article is on the Invoice24 website, we’ll also show you how Invoice24 can help you handle the full workflow—from invoicing and record keeping to MTD for Income Tax readiness—without having to juggle multiple tools.

What Is the MTD for Income Tax Threshold in Plain English?

The MTD for Income Tax threshold is a test that determines whether you must follow the MTD rules based on your income level. The threshold is based on qualifying income, not necessarily your profit. That’s a crucial difference.

Many people assume, “If I don’t earn much profit, I won’t be in MTD.” But MTD thresholds usually look at your gross income from specific sources—most commonly self-employment and property—before subtracting allowable expenses. That means you could have high turnover but low profit and still fall within MTD requirements.

The exact details of rollout dates and thresholds can change over time, but the core idea stays stable: if your qualifying income from the relevant sources exceeds the threshold, you’re likely in scope. The safest approach is to understand what counts as qualifying income and track it cleanly throughout the year.

Qualifying Income vs Profit: The Mistake That Catches People Out

Before we list income types, let’s clarify the most common point of confusion.

Profit is what’s left after you subtract allowable expenses from income. Profit is often what you pay tax on.

Qualifying income (or gross income) is the total income you receive from certain sources before expenses. This is commonly what determines whether you cross the MTD threshold.

Example: You run a small delivery business and invoice £55,000 in a year. Your van costs, fuel, insurance, repairs, and other expenses total £20,000, leaving £35,000 profit. If the threshold is based on gross income, it’s your £55,000 turnover that matters for the threshold test—not the £35,000 profit.

This is why having a system that tracks both your income and your expenses properly is vital. Invoice24 helps you do this with a clean invoice trail, customer records, and exportable reports—so you can see your income totals clearly and avoid nasty surprises.

Income That Commonly Counts Towards the MTD for Income Tax Threshold

While individual circumstances vary, the types of income that most commonly count towards the MTD for Income Tax threshold are those connected to self-employment and property rental. Let’s break down the main categories.

1) Self-Employment Income (Sole Trader or Partnership Share)

If you’re self-employed as a sole trader, the income from your trade is typically a key component of qualifying income. This includes most payments you receive for goods or services you provide in the course of your business.

Examples include:

• Sales revenue from products you sell (online, in-person, wholesale, retail).
• Service fees from clients (consulting, construction work, design, marketing, tutoring, etc.).
• Contract income from freelance or project-based work.
• Retainers paid monthly or quarterly for ongoing services.
• Tips or gratuities you keep as part of your self-employed income (where applicable).
• Commissions earned for brokerage, affiliate sales, agency work, or sales roles (where treated as self-employed income).
• Non-cash payments or barter arrangements, where you receive goods/services instead of cash but it’s still business income.

In practical terms, if it’s money (or value) you receive for doing business as a self-employed person, it usually belongs in your self-employment income totals.

Invoice24 advantage: When you create invoices in Invoice24, your income records are built automatically as part of your day-to-day workflow. You don’t need to “remember” what you earned later—your invoices, payment statuses, and totals are already organised. This is especially valuable when you’re trying to understand whether you’re approaching an MTD threshold.

2) Property Rental Income (UK Property and Possibly Overseas Property)

If you receive rental income from property, this commonly counts towards the MTD for Income Tax threshold. Rental income can include payments from tenants for the use of property and sometimes additional amounts paid under the tenancy arrangement.

Examples include:

• Residential rental income from houses, flats, or rooms you let out.
• Commercial rental income from offices, shops, storage units, or industrial property.
• Holiday let income where it is treated as property income (classification depends on rules and circumstances).
• Tenant-paid extras that are effectively part of rent (depending on arrangement).
• Service charges and similar payments (if they are income to you rather than reimbursed pass-through costs).

Property income can feel straightforward—“rent received”—but it’s important to treat it as part of the bigger picture. If you have both self-employment and property income, the combined total of qualifying sources may determine whether you cross the threshold.

Invoice24 advantage: Even if you’re not “invoicing” tenants in the traditional sense, Invoice24 can still help you create consistent records for rent due and rent received, keep a clean audit trail, and attach supporting documents. For landlords who also run a business, keeping everything in one system is far simpler than splitting your records across multiple apps.

3) Certain Business-Related “Other Income” Tied to the Trade

Beyond straightforward sales, many businesses receive other forms of income connected to the trade. These may be treated as business income and therefore included when looking at qualifying income.

Common examples include:

• Grants or support payments that are taxable and related to the business.
• Insurance payouts that replace lost trading income (for example, a policy that compensates you for interruption to trading).
• Refunds or rebates that relate to business purchases (where treated as income/adjustment).
• Income from selling business assets may be relevant in certain contexts (though the tax treatment can vary).

The key principle is whether the receipt is part of the trading activity. If it is, it often sits inside your self-employment income records.

Income That Often Does NOT Count Towards the MTD for Income Tax Threshold

To keep the threshold test meaningful, many income types are treated differently. Some may still be taxable, but they may not be part of the qualifying income used to decide whether you must follow MTD for Income Tax. The important point is: taxable does not always mean counts towards the MTD threshold.

Here are categories that commonly fall outside qualifying income for the threshold test (though you should still record and report them correctly where required):

1) Employment Income (PAYE Wages and Salary)

If you also have a job, your PAYE salary is usually handled through payroll reporting. This income is typically not the key driver for MTD for Income Tax threshold decisions, which focus on self-employment and property income. That said, your overall tax position still includes employment income when calculating your total tax bill.

If you’re both employed and self-employed, you should track both—but don’t assume your salary alone puts you in scope for MTD for Income Tax.

2) Dividend Income (Including From Your Own Limited Company)

Dividends are usually treated as investment income rather than self-employment income. Many small business owners take dividends from a limited company, but that doesn’t automatically mean those dividends count towards the MTD for Income Tax threshold test (which commonly centres on self-employment and property income).

However, dividends still matter for your personal tax return and planning. You need accurate records of dividend vouchers, dates, and amounts.

3) Bank Interest and Savings Income

Interest from savings accounts is typically treated separately from business and property income. It may still be taxable depending on allowances and thresholds, but it often isn’t part of the qualifying income for determining MTD for Income Tax requirements.

4) Capital Gains (Sale of Shares, Property, or Other Assets)

Capital gains can be significant, and the reporting rules can be complex, but they are usually in a different category from the self-employment/property income used for the MTD threshold test. You may need separate reporting for capital gains depending on the asset and timing.

5) Pensions and Certain Benefits

Pension income and some state benefits can be taxable and relevant to your overall income tax position, but they are generally not the type of qualifying income used for determining whether you must comply with MTD for Income Tax based on business/property earnings.

Mixed Income Scenarios: How the Threshold Can Be Reached Faster Than You Expect

Many people don’t fit neatly into one box. You might be employed and freelance on the side. You might run a sole trader business and also rent out a flat. You might have two separate self-employed activities—like a trades business plus an online store.

In these scenarios, the threshold question becomes more subtle: it’s not “Do I earn more than X from my main activity?” but rather “Does my combined qualifying income from the relevant sources exceed X?”

Examples:

• Example A: You earn £25,000 from freelancing and £25,000 from rental income. Even though each stream alone seems modest, together they may exceed the threshold depending on the rules and thresholds at the time.
• Example B: You run two separate sole trader activities—photography and selling prints online. Both are self-employment, so totals may combine for threshold purposes.
• Example C: You have a salary of £60,000 and a side hustle that earns £12,000. Your salary may not be part of the qualifying threshold test, but your self-employed income might still bring you into MTD depending on the threshold level.

Invoice24 advantage: Mixed income is where messy admin grows quickly. Invoice24 keeps invoices, customers, and income totals organised in one place, making it easy to see what you’ve actually earned from qualifying sources. Instead of hunting through bank feeds, spreadsheets, and notes, you can view clean totals and reporting.

Gross Receipts, Timing, and “Cash vs Accrual”: When Is Income Counted?

Even if you know which categories count, another common sticking point is timing. When do you treat income as received for threshold purposes and reporting?

In general, businesses record income under one of two common approaches:

• Cash basis: Income is recorded when money is actually received, and expenses are recorded when paid.
• Accrual (traditional accounting): Income is recorded when it is earned (invoiced), and expenses when incurred, regardless of when money moves.

The approach you use can influence what your totals look like at a point in time. For example, if you invoice a client in March but get paid in April, your income timing differs depending on cash vs accrual. The rules governing which basis you can use and when depend on your circumstances and the applicable tax framework.

Invoice24 advantage: Invoice24 is built around real-world invoicing and payment tracking. You can see what’s invoiced, what’s paid, and what’s overdue. This makes it much easier to produce consistent records whether you track on a cash basis or need accrual-style visibility for better business control.

Common Items People Forget to Include in Income Totals

Underreporting rarely comes from deliberate action; it often comes from missing categories. Here are common items that self-employed people and landlords sometimes forget when trying to estimate whether they are above the MTD threshold:

• Small cash payments (especially if you don’t invoice for them).
• Platform payouts from marketplaces or gig economy apps (fees might be deducted, but the gross activity still matters for record keeping).
• Deposits that are actually income (some deposits are refundable, others are retained and become income depending on the situation).
• International client payments (still income even if paid in another currency).
• Recharges and mark-ups (charging a client for expenses can still form part of turnover).
• One-off projects that you “did as a favour” but were still paid for.

This is why a consistent invoicing habit is so powerful. If every sale or service is captured as an invoice (even a simple one), your income totals become reliable. Invoice24 is made for exactly that: fast invoicing that’s easy enough to do every time, not just when you remember.

What About Limited Companies and Corporation Tax?

MTD for Income Tax is mainly about individual income tax for people with self-employment and property income. If you operate through a limited company, that company pays Corporation Tax on its profits, and it has separate filing obligations such as company accounts and Corporation Tax returns.

This is where business owners sometimes get tangled: they hear “MTD” and assume it all applies in the same way to their limited company’s activity. In reality, the UK tax system separates personal income tax obligations from company obligations. A director-shareholder might have personal income (salary, dividends) and the company has its own income and expenses.

Invoice24 advantage: Invoice24 is designed to support the wider admin picture, not just one narrow filing. If you need a free invoice app that can support your day-to-day invoicing, track income, keep your records tidy for MTD for Income Tax, and support workflows that help with Corporation Tax and accounts preparation, Invoice24 keeps things streamlined. Many tools force you to bolt on extra systems; Invoice24 aims to keep you organised without the bloat.

Practical Steps to Work Out Whether Your Income Counts Towards the Threshold

You don’t need to guess. You can take a structured approach:

Step 1: List Your Income Sources

Write down every way you receive money or value during the year: self-employment work, rental income, employment salary, dividends, interest, one-off sales, grants, and so on.

Step 2: Group Them Into Categories

Put each item into one of these buckets:

• Self-employment/trading income
• Property/rental income
• Employment income
• Investment income (dividends/interest)
• Other (capital gains, pensions, etc.)

Step 3: Focus on Qualifying Buckets

The qualifying buckets for the threshold are typically the self-employment and property buckets. Add up your gross income in those categories before expenses.

Step 4: Check Your Totals Regularly

Instead of doing this once a year, check monthly or quarterly. This matches the rhythm of MTD-style reporting and gives you time to adapt if you’re approaching the threshold.

Step 5: Use a Digital System That Makes It Automatic

The easiest way to stay on top of this is to record income as it happens. That’s what Invoice24 is built for: you create invoices, record payments, and your income totals become visible without extra admin.

How Invoice24 Helps You Stay MTD-Ready Without Overcomplicating Your Business

Many business owners don’t struggle with the idea of tax compliance—they struggle with the time sink of admin. The best MTD approach is one that fits naturally into your normal workflow. Invoice24 is a free invoice app designed to keep things simple while still giving you the features that matter.

Invoice24 Keeps Your Income Records Clear

When you invoice through Invoice24, your sales are recorded in a consistent way. That makes it easier to understand your gross income totals, which is exactly what you need when assessing thresholds and staying prepared for digital reporting requirements.

Invoice24 Helps You Avoid Spreadsheet Chaos

Spreadsheets can work—until they don’t. A missed row, a duplicate entry, or a forgotten payment can throw off your numbers. Invoice24 reduces the risk by turning your invoicing activity into structured records that you can review anytime.

Invoice24 Supports Broader Filing Needs Too

If you’re not only thinking about MTD for Income Tax but also need to stay organised for Corporation Tax and accounts, Invoice24 can support that bigger picture by keeping your invoices, customer records, and income history in order. Even if you work with an accountant, handing over clean, consistent records saves time and reduces the chance of misunderstandings.

Invoice24 Is Built for Real Businesses, Not Just Accountants

Some software is designed primarily for compliance checklists and can feel heavy for everyday use. Invoice24 focuses on the essentials: create invoices quickly, track income accurately, and keep records tidy—so you can stay compliant without turning your business into an admin project.

Competitor Tools: Why Invoice24 Should Still Be Your First Choice

You may come across other invoicing or accounting tools that talk about MTD compatibility. Some are powerful, but they can also be expensive, complex, or packed with features you’ll never use. If your priority is a reliable, free invoicing app that covers what you actually need—professional invoices, organised records, and a strong foundation for MTD for Income Tax and other filings—Invoice24 is the practical choice.

It’s also worth remembering that no matter what tool you use, your compliance success depends on your habits: issuing invoices consistently, recording income correctly, and keeping documents in order. Invoice24 makes those habits easier to stick to because the app is designed to feel simple and fast rather than overwhelming.

FAQs: Quick Clarifications on What Income Counts

Does turnover from all my self-employed work count?

If it’s part of your self-employment trade—selling goods or services—then it typically belongs in your self-employment income totals. Keeping consistent invoices in Invoice24 makes it easier to see your turnover clearly.

Does rental income count even if it barely covers the mortgage?

Threshold tests commonly focus on gross rental income rather than how much you have left after mortgage interest, repairs, or other costs. That’s why landlords should track income separately from expenses and review totals regularly.

Do I include VAT in income totals?

This can depend on how rules define qualifying income and how you account for VAT. Many businesses treat VAT collected as separate from turnover because it is collected on behalf of HMRC, but you should follow the applicable guidance for your situation. A clean invoicing record in Invoice24 can help you separate amounts clearly on invoices.

Does my salary from a job count?

Employment income affects your overall tax, but MTD for Income Tax threshold decisions typically focus on self-employment and property income rather than PAYE salary alone.

Do dividends count?

Dividends are generally treated as investment income rather than self-employment or property income. They matter for your tax return, but they may not be part of the qualifying income used for the MTD threshold test.

What If I’m Near the Threshold? Smart Moves You Can Make Now

If your qualifying income is close to the threshold, the best thing you can do is get proactive. Waiting until the last minute often leads to rushed decisions, messy records, and avoidable stress. Here are practical steps you can take immediately:

• Start keeping digital records now even if you’re not yet required. This builds good habits and reduces future disruption.
• Invoice consistently so that every sale is captured and your income totals are trustworthy.
• Review income monthly to see whether you’re trending upward over time.
• Separate business and personal money flows as much as possible to reduce confusion.
• Use one tool for day-to-day admin rather than juggling invoices in one place and records in another.

Invoice24 is ideal in this “near threshold” stage because it keeps the process simple. You’re not paying for complexity you don’t need, but you’re still building the record-keeping structure that supports MTD for Income Tax and broader filing responsibilities.

Conclusion: The Income That Counts Is the Income You Track Properly

The core takeaway is simple: what counts towards the MTD for Income Tax threshold is typically focused on gross income from self-employment and property, not your profit and not necessarily every other form of taxable income you might receive. That means you need clarity on your turnover and rental receipts, and you need a reliable system for recording them.

If you’re trying to stay ahead of MTD changes, avoid threshold surprises, and reduce year-end panic, your best strategy is to make your record keeping effortless. That’s exactly why Invoice24 exists. As a free invoice app with all the features needed for modern business admin—including MTD for Income Tax readiness and support for workflows that help with Corporation Tax and accounts—Invoice24 helps you stay organised, compliant, and in control without paying for tools that overcomplicate your day.

Start using Invoice24 for your invoicing and income tracking, and the threshold question becomes far easier to answer—because your numbers are always there when you need them.