The Expansion of MTD in the UK: What’s New
- HMRC plans to extend Making Tax Digital (MTD) for Income Tax to sole traders and landlords whose income exceeds £20,000, starting April 2028. (gov.uk)
- The MTD system already applies for VAT and smaller income levels; this expansion means more frequent reporting (quarterly summaries), and digital record-keeping. (gov.uk)
Entity Setup: How to Align Your Structures Now
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Business form: Sole traders and limited companies will both need digital records under MTD; limited companies already face stricter rules, but sole traders used to simpler bookkeeping will need to upgrade now.
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Choose suitable accounting software: Digital platforms that interface with HMRC’s systems, allow quarterly reporting, expenses categorization, and alert you when thresholds are met.
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Consider property income separately: Landlords with rental income will need to include that data in MTD submissions, even if income is small, if they exceed the £20,000 gross threshold total.
Setup Tips for Smooth Transition
- Audit your current record-keeping systems: Do you capture income, expenses, mileage, and other deductions digitally? If you’re still using spreadsheets or paper, migrate early.
- Train staff or contractors: If outsourcing bookkeeping, ensure your team knows MTD requirements. Mistakes in categorization could lead to incorrect tax calculations.
- Forecast income thresholds: If you anticipate crossing the £20,000 gross mark, plan cash flow and perhaps reconsider legal form of business to optimize tax burden.
- Keep all digital invoices: E-invoices, receipts, proof of expenditure—all part of compliance. Being able to provide them upon request or audit matters.
- Check for agent representation rules: If you use an agent, ensure they are MTD-compliant and authorised to file digital returns and summaries.
Case Examples
- Solo landlord: Jane receives £22,000/year rental income. From April 2028, she must report every quarter via MTD; if she sets up her accounting system now, she'll avoid backlog and errors.
- Small business sole trader: Sam also rents out a spare room and does consulting, totaling £25,000 income. He needs digital recordkeeping now and use MTD-compatible software, even though consulting income was previously separate.
Risk Areas & Mitigation
| Risk | Mitigation |
|---|---|
| Missing deadlines and incurring penalties for late submission | Set reminders and prepare ahead; even early enrolment in pilot programs if available. |
| Poor expense tracking leading to lost deductions | Use expense apps; filter receipts; reconcile monthly. |
| Non-compliance due to technical errors (software mismatch or lack of integration) | Work with reputable vendors; periodic testing; keep backups. |
Key Takeaways
- MTD extension is not optional—businesses and landlords above the threshold must comply.
- Starting early gives you time to adapt and avoid penalties or rush costs.
- Proper entity setup, good software, and strong digital records lower risk.
- For those slightly below thresholds, still worthwhile to adopt best practices now for easier scaling later.