Digital Expansion: What Lowering the MTD Income Threshold Means for UK Sole Traders & Landlords

What is Making Tax Digital (MTD) for Income Tax?

MTD is a UK initiative aiming to bring tax reporting fully online and digital. For Income Tax Self Assessment, taxpayers with qualifying income must keep digital records and submit quarterly updates plus an annual final return using compatible software.

New Thresholds & Effective Dates

• Current mandatory threshold: Sole traders and landlords with income above £30,000 from April 2027. (gov.uk)
• New threshold: Reduced to £20,000 from 6 April 2028, bringing nearly 1 million more individuals into scope. (gov.uk)
• In-scope individuals: Sole traders and landlords; certain investment income and property income will contribute to threshold calculation.

Who Becomes Newly Affected?

You will need to use MTD if you:

• Earn over £20,000 sole trader profit per year or
• Receive income as landlord above that threshold or
• Are already under the threshold but expect to exceed it by April 2028.

What You Need to Do to Prepare

• Get compatible software: Use one certified for MTD Income Tax that supports quarterly updates, digital record-keeping, and an annual final return.
• Update accounting habits: Move from annual accounts/bookkeeping to continuous tracking of income/expenses.
• Register ahead: Understand the sign-up process; know deadlines for voluntary vs mandatory enrolment. Staggering helps manage workload.
• Seek advice if combining property income, self-employment, or non-routine sources, as these complicate the ‘qualifying income’ calculation.

Example Scenario

Alice is a sole trader with self-employment turnover of £18,000 and rental income of £5,000 — total qualifying income £23,000. From April 2028, she will need to use MTD: she must maintain digital records, send quarterly updates, and file her final Self Assessment via software.

Benefits & Challenges

Pros:

• Get updates on tax liability throughout the year, reducing surprises.
• Improved tidiness and business insights with up-to-date records.
• Reduced risk of penalties for late or incorrect submissions.

Challenges:

• Initial cost/time to set up software and processes.
• Need for discipline in recording receipts and expenses frequently.
• Learning curve, especially for landlords who haven’t used accounting software before.

Actionable Steps

1. Evaluate current income sources and estimate whether you’ll reach £20,000 by 2028.
2. Research and purchase certified MTD software.
3. Build good record-keeping habits: date, amount, category, receipts.
4. Run mock quarterly updates to test readiness.
5. Stay updated via HMRC guidance and webinars.