Making Tax Digital (MTD) for Income Tax is being introduced in phases for sole traders and landlords, but the rules are different for partnerships and individual partners.
HMRC guidance has clarified that a partner’s share of partnership profit is not included when determining whether they meet the MTD for Income Tax qualifying income threshold. This distinction is important because some partners may receive significant partnership income yet remain outside the scope of MTD, while others may be required to comply because of separate self-employment or property income.
Understanding how these rules apply can help partners assess their obligations and avoid confusion as MTD continues to develop.
Partnership Income Does Not Count Towards MTD Qualifying Income
HMRC has confirmed that an individual partner’s share of partnership profit does not count as qualifying income for MTD for Income Tax purposes.
Qualifying income is based on gross income, before expenses, from:
- Self-employment (sole-trade income)
- UK property income
- Overseas property income
HMRC qualifying income guidance explains the income sources used when determining whether an individual meets the threshold.
HMRC generally uses information from an individual’s Self Assessment tax return for the previous tax year to determine whether the relevant qualifying income threshold has been exceeded.
This means partnership profits should not be combined with a partner’s separate sole-trade or property income when assessing whether they are required to comply with MTD for Income Tax.
HMRC’s guidance also confirms that an individual partner’s share of partnership profit does not form part of the income used to determine whether they must join MTD for Income Tax.
Partnerships Are Not Yet Required to Use MTD for Income Tax
The mandatory MTD for Income Tax regime is currently being introduced for qualifying sole traders and landlords rather than partnerships.
HMRC has previously stated that partnerships are intended to be brought within MTD for Income Tax at a future date. However, no implementation timetable has been announced.
This should not be interpreted as a permanent exemption. Partnerships remain subject to their existing Self Assessment reporting requirements and should continue to comply with current obligations unless and until HMRC introduces formal changes.
The nominated partner remains responsible for submitting the Partnership Tax Return, typically using form SA800, while each partner reports their allocated share of partnership income through their own Self Assessment tax return
Current MTD for Income Tax Thresholds
Making Tax Digital for Income Tax is being introduced gradually.
Under HMRC’s current timetable:
- From 6 April 2026, MTD applies where qualifying income exceeds £50,000
- From 6 April 2027, the threshold reduces to £30,000
- From 6 April 2028, the threshold reduces to £20,000
For individual partners, partnership profit does not count towards these thresholds.
For example, a partner receiving £75,000 solely from their share of partnership profits would not be brought within MTD for Income Tax on that income alone.
However, if that same individual also receives £35,000 of gross rental income from personally owned property, that rental income would count as qualifying income and could bring them within the scope of MTD, depending on the applicable threshold.
The key point is that MTD qualifying income is not the same as total taxable income.
Partners May Still Fall Within MTD Through Other Income Sources
A partner may still be required to comply with MTD for Income Tax if they exceed the qualifying income threshold through separate sources of income.
Examples of qualifying income include:
- Self-trade income
- UK property income
- Overseas property income
If income from these sources exceeds the relevant threshold, the individual may be required to comply with MTD for Income Tax.
Partnership income remains outside the qualifying income calculation.
However, partnership income is still taxable and must continue to be reported through the appropriate tax reporting process.
In other words, partnership income may be excluded from MTD threshold calculations, but it is not exempt from tax reporting obligations.
MTD Does Not Replace the Partnership Tax Return
Partnerships must continue to meet their existing reporting obligations.
The Partnership Tax Return remains the mechanism through which partnership profits are calculated and allocated between partners.
Individual partners must then report their respective share through their own tax returns.
This remains the case regardless of whether one or more partners are separately required to comply with MTD because of other qualifying income sources.
Maintaining a clear separation between partnership records and personal business records can help:
- Prevent partnership income being incorrectly included in MTD threshold assessments
- Improve reporting accuracy
- Simplify year-end reconciliations
- Reduce administrative complications
Partnerships should continue meeting their existing Self Assessment obligations until HMRC confirms any future changes to partnership reporting requirements.
Practical Steps Partners Should Take Now
The most effective starting point is to assess income by source rather than focusing solely on total earnings.
Partners should review whether they receive income from:
- A separate sole trade
- Personally owned rental properties
- Overseas property businesses
These sources may count towards MTD qualifying income even where the majority of overall income comes from the partnership.
It is also sensible to:
- Check the MTD threshold applicable to the relevant tax year
- Keep partnership and personal business records clearly separated
- Ensure any software used for MTD submissions is compatible with HMRC requirements
- Continue meeting partnership and individual Self Assessment obligations
- Monitor HMRC guidance for updates relating to partnerships and MTD
Accurate record-keeping is central to MTD compliance and can help reduce the risk of reporting errors as digital tax requirements continue to evolve.
How The Infinity Group Can Help
The Infinity Group supports partnerships, LLPs, sole traders, landlords and other businesses with bookkeeping, accountancy and Self Assessment services.
As Making Tax Digital requirements continue to develop, maintaining accurate records and clearly distinguishing partnership income from other taxable income sources is becoming increasingly important.
Our team can help businesses maintain organised financial records, meet their reporting obligations and prepare for future digital tax requirements with confidence.
We do not simply focus on accurate accounting records. We also help clients stay compliant with evolving HMRC requirements, providing practical support as tax reporting obligations develop.
By reviewing your position in advance, you can address potential record-keeping or software issues before they become a reporting challenge.