Despite the timescales changing over the years, there is now no going back on Making Tax Digital (MTD) for income tax. Unless exempt, it will mean sole traders and landlords will be required to maintain digital records using compliant software and submit quarterly updates to HMRC from April 2026 (for those with a gross income above £50,000) or April 2027 (above £30,000). The spring statement confirmed that threshold will reduce to £20,000 from April 2028.

MTD income thresholds

The gross income of a sole trader/landlord in the 2024/25 tax year will dictate whether they need to meet the requirements of MTD for income tax in 2026/27. Once they are within MTD for income tax, it will be necessary to meet the MTD requirements for at least three tax years. This is because, to claim an income exemption later, the taxpayer’s income from self-employment and property must be below the threshold for at least three consecutive tax years.  

When assessing these thresholds, gross income from both self-employment and rental income are counted for the purposes of the threshold, but income from employment, a partnership or dividend income are not included. 

Volunteer to join early

We encourage our members to take part in HMRC’s trial for MTD for income tax. Doing so will allow your practice to properly prepare and test the compatibility of your own systems (and those of your clients) ahead of implementation, while also giving HMRC a broad spectrum of sole traders and landlords to ensure thorough testing while a more lenient penalty system is in place.

This will also give you access to HMRC’s dedicated MTD support team. This is only available for those clients taking part in the trial, not all clients of an agent who is taking part. You can sign up your business and your client’s business on the HMRC website.

MTD for income tax is not just a case of sending quarterly updates to HMRC. Each sole trader/landlord has to be registered with HMRC in advance, not just those participating in the trial. Sign-up can be one tax year in advance, so those who will be required to submit quarterly updates from April 2026 can sign up from April 2025. If the taxpayer has multiple income sources, you’ll need to sign up for each. 

Multiple agents

From April 2025, HMRC will allow both a main agent and supporting agents to be registered to act for the same client, although the information they can access will be different. If a main agent has already been authorised on the legacy self-assessment system, it will not be necessary to register again for MTD for income tax.

Exemptions

A business is exempt from MTD for VAT where it’s not practical to keep the business records or submit VAT returns digitally, such as due to age, disability or location. An exemption also applies where the business is run entirely by practising members of a religious society (or order) whose beliefs are incompatible with using electronic communications or records.

A similar exemption for digitally excluded taxpayers will apply for MTD for income tax. VAT-registered businesses exempt from MTD for VAT will automatically be exempt from MTD for income tax.

The 2025 spring statement announced the expansion in the exemptions for MTD for income tax, adding taxpayers with a power of attorney, non-UK-resident foreign entertainers and sportspeople with no other qualifying income sources. Ministers of religion, members of Lloyd’s Underwriters and recipients of the married couples’ allowance or blind persons’ allowance will not be required to submit quarterly updates for the duration of this Parliament. 

Details of how to claim exemption where necessary will be confirmed ahead of April 2026.

Other spring statement changes

The spring statement also announced the withdrawal of HMRC’s online filing service to submit a final tax return. Taxpayers will now be required to use third-party software. While the government believes this will provide a better customer journey, we have concerns this will increase the costs of complying, which could in turn discourage sole traders and landlords from signing up early. We would also like to see an improvement in the information provided on software options on the HMRC website. 

The government also announced late payment penalties for VAT and income tax self-assessment taxpayers as they join MTD from April 2025 onwards will increase. The new rates will be:

• 3% of the tax outstanding where tax is overdue by 15 days, plus
• 3% where tax is overdue by 30 days, plus
• 10% per annum where tax is overdue by 31 days or more

Supporting our members

As the legal requirement to comply with the MTD regulations draws closer, we’ve been providing our members with the latest information and resources to get ready for MTD for income tax.

To make it easier to find the information needed to navigate this important change, we are delighted to launch our MTD hub which brings together all the relevant guidance covering which sole traders/landlords are required to comply when. There are also details of upcoming events and software options for MTD for income tax. We also recently held a webinar with Craig Ogilvie, HMRC’s MTD Director, which can be viewed here.

Read this story in full