Does Your Side-Hustle Income Count Towards the Making Tax Digital Threshold?
Making Tax Digital threshold: A few hundred pounds a month from freelance or sole-trader work can feel separate from the rest of someone’s finances, especially when it sits alongside a salary or rental property. For Making Tax Digital for Income Tax, what matters is whether those earnings are self-employment income and how they contribute to qualifying income on the relevant tax return.
For people with property income as well as self-employment earnings, HMRC combines the two amounts when working out qualifying income. Someone with two fairly ordinary income streams can cross an MTD threshold even when neither one does so on its own.
Side-hustle income can count if it is self-employment income
Whether side-hustle earnings count depends on what HMRC treats them as. Self-employment income forms part of qualifying income for Making Tax Digital for Income Tax. Employment income paid under PAYE does not.
Property income is counted alongside self-employment income. HMRC looks at the combined gross amount before expenses rather than checking each source against the threshold separately. HMRC counts both sources together when someone has property income alongside freelance or sole trader income.
For someone with both property and self-employment income, working out whether MTD applies comes before choosing filing software. Quarterwise’s guide to MTD thresholds explains how HMRC combines those income sources and which income band brings someone into MTD.
A small sideline is not automatically enough to bring someone into MTD. The deciding figure is the combined qualifying income shown for the tax year HMRC uses to assess entry into the system.
HMRC uses gross income before expenses
The Making Tax Digital threshold is measured using qualifying income. HMRC defines this as total income from self-employment and property before expenses, using figures from the Self Assessment tax return submitted for the previous tax year.
That distinction matters for someone whose profit is much lower than the amount they receive. Business costs, property repairs or other expenses do not reduce the figure HMRC uses for this threshold test.
Income can also come from more than one property or more than one source of self-employment. HMRC adds the qualifying sources together when assessing the total.
Joint property ownership works slightly differently. Each person’s share of the property income counts towards their own qualifying income rather than the full rent from the jointly owned property being attributed to both owners.
Salary and several other income sources do not count
Having a job as well as a side hustle does not mean the salary is added to the MTD qualifying-income figure. Employment income under PAYE is excluded.
HMRC also excludes dividends, State Pension income, private pensions and an individual’s share of partnership profit from this calculation. Those sources may still need to appear on the tax return, but they do not decide whether the qualifying-income threshold has been crossed.
This is why two people with the same total annual income can fall on different sides of the MTD rules. One person might receive most of their money as salary, while another receives a similar amount from property and self-employment. Only the second person’s qualifying sources are used for the threshold test.
The income bands change between 2026 and 2028
The first of the MTD start dates was 6 April 2026, applying to people whose qualifying income for the 2024 to 2025 tax year was more than £50,000.
From 6 April 2027, the threshold falls to more than £30,000, using qualifying income from the 2025 to 2026 tax year. From 6 April 2028, people with qualifying income of more than £20,000 for 2026 to 2027 enter the system.
The previous tax return matters because HMRC uses it to decide whether someone needs to use MTD in the following tax year. A rise in side-hustle or rental income does not change the MTD position immediately. HMRC uses the tax return linked to the relevant start year to determine when the requirement begins.
HMRC may write to people whose records show they need to use the service, but the obligation follows qualifying income rather than whether a letter arrives.
Dropping below the threshold once does not always end MTD
Income from freelance work, sole trader activity or property can vary from year to year. Someone who has entered MTD and then earns less in a later year does not automatically leave the system after that single drop.
HMRC currently allows someone to opt out when qualifying income has been below the relevant threshold for three consecutive tax years. A separate route applies where a previous Self Assessment return is amended and the revised figure falls below the threshold.
This matters for people whose side-hustle income changes sharply from one year to the next. The figure that first brings someone into MTD and the rules for leaving it are not the same test.
Crossing the threshold changes how records and returns are handled
Once someone is required to use Making Tax Digital for Income Tax, self-employment and property records covered by MTD need to be kept digitally using compatible software. Quarterly updates are then sent during the year, followed by the tax return after the tax year ends.
A side hustle can affect whether someone falls within MTD when HMRC treats the earnings as self-employment income. If there is property income as well, HMRC combines the two when working out qualifying income. Salary under PAYE is excluded from that calculation.
