What is MTD and What’s Changing
“Making Tax Digital for Income Tax Self Assessment” (MTD ITSA) requires qualifying individuals—sole traders and landlords—to maintain digital records and submit quarterly updates to HMRC using compatible software. From 6 April 2026, it’s mandatory for those with income over £50,000. That threshold drops to £30,000 in April 2027, and further to £20,000 in April 2028.(gov.uk)
Why Thresholds Are Being Lowered
Lowering the threshold is part of a government plan to modernize UK tax administration and reduce errors in Self-Assessment. The policy aims to bring more businesses and landlords under digital rules so that records are accurate, return errors are reduced, and tax collection is improved. Around 970,000 additional individuals will come into scope with the £20,000 threshold.(gov.uk)
Who’s Affected & Who’s Exempt
- Impacted: Sole traders and landlords whose combined property and business income exceeds the new thresholds.
- Exemptions/deferrals: Ministers of religion, Lloyd’s underwriters, those with Blind Person’s Allowance, power of attorney arrangements, and non-UK resident entertainers may be deferred until April 2029 or permanently exempt from digital obligations.(gov.uk)
What You Need to Do
- Get compliant software ready. If your income is near the thresholds, test it and move early.
- Digital record-keeping: maintain records of income, expenses, invoices digitally.
- Quarterly updates to HMRC, plus final return annually.
- Plan for cashflow: having more frequent reporting often means earlier payment or estimation of tax owed.
Example Scenario
Sarah is a landlord with rental income (£25,000/year) and small side self-employment (£5,000/year). Total qualifying income £30,000. Under the 2028 thresholds, she’d be required to use MTD ITSA—maintain digital accounting, submit quarterly summaries, and use MTD-compatible software from April 2028. Up till then, she remains outside scope, unless income thresholds are crossed earlier.
Key Upcoming Dates
- 6 April 2026: £50,000 threshold in force.
- 6 April 2027: Threshold drops to £30,000.
- 6 April 2028: Threshold drops to £20,000, bringing most smaller businesses under digital tax obligations.
How to Prepare
- Review your qualifying income for past year.
- Choose MTD-compatible software early—many providers offer free trials.
- Keep good records from now—don’t wait until compulsory threshold hits.
- Watch for HMRC guidance—especially for exemptions.
Conclusion
The lowering of thresholds for Making Tax Digital reflects a long-term shift in UK tax administration. While it increases compliance requirements, early planning and software adoption can help individuals absorb the changes smoothly—and avoid penalties down the line.