Background to the ITSA Threshold Update
- Under the Spring 2025 Tax Update, the UK government announced that the threshold for trading, property and “other taxable income” will be aligned at £3,000 gross per source, reducing the number of taxpayers required to submit full Self-Assessment returns. (gov.uk)
- Concurrently, Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is rolling out: the new regime becomes obligatory for those with trading or property income over £20,000 starting 6 April 2028, along with other detailed changes. (gov.uk)
What Individuals and Businesses Must Do Now
- Track income sources: Keep gross income from trading, property & others separately; if any exceeds £3,000, Self-Assessment may be required.
- Register early for MTD-ITSA: Even before April 2028, make sure software and bookkeeping are capable of digital submission.
- Choose method: Taxpayers below threshold will have option to remain in Self-Assessment or use a simplified digital reporting service. (gov.uk)
Examples
- Landlord earning £2,500 rental income annually and £1,000 side freelancing income: total “property + other” sources each below £3,000; under new rules, may avoid full Self-Assessment if no other requirement triggers it.
- Small business owner with £25,000 income: above MTD-ITSA threshold; must prepare finances digitally for reporting and submission-ready by software from 6 April 2028.
Practical Steps for Compliance Teams
- Software readiness: ensure accounting packages support MTD-ITSA; digital ledgers, timely invoicing and expense tracking.
- Education and training: Business owners, accountants, and finance departments need training on thresholds and rules.
- Record keeping: Maintain supporting records for deductions, business expenses, and income sources; separate trading vs passive income.
Timeline Summary
- Now: understand your income sources; decide whether to stay with Self-Assessment or transition to digital reporting if eligible.
- 6 April 2025: CGT rates for carried interest increase; non-employment income threshold alignment at £3,000 becomes effective soon after announcement. (gov.uk)
- 6 April 2026: Carried interest new regime fully effective. (gov.uk)
- 6 April 2028: MTD-ITSA becomes mandatory for those over the £20,000 limit. (gov.uk)