Changes to Making Tax Digital (MTD) were announced in the Spring Statement on 26 March 2025, including bringing forward the introduction of MTD for Income Tax for sole traders and landlords with income over £20,000.
The Spring Statement confirms that the Government will continue with its planned rollout of MTD for Income Tax Self Assessment (ITSA).
Extending MTD for ITSA
From April 2028:
- MTD will apply to landlords and sole traders if they have qualifying income of over £20,000.
- There will be a wider scope to include more small businesses in MTD for Income Tax.
For those affected, this brings forward the date for the implementation of MTD for ITSA from April 2029/2030.
The Government expects MTD to prepare UK businesses for the future and provide the tools required to put businesses on a 'digital footing' whilst encouraging them to succeed in an increasingly competitive landscape.
The Government intends to continue reviewing MTD and possible 'solutions' for those who have income below £20,000.
Wider changes, including exemptions
Other changes announced to the design of MTD include making some taxpayer groups exempt from operating the regime.
Those exempt will be:
- Taxpayers with Power of Attorney.
- Non-UK resident foreign entertainers and sportspersons with no income sources that qualify for MTD.
- Taxpayers for whom a digital service cannot be provided.
In addition, the following groups will not be required to join MTD:
- Ministers of religion.
- Lloyds Underwriters.
- Those in receipt of Blind Person's Allowance.
- Those in receipt of Married Couples Allowance.
Further guidance and legislation will be issued that will outline the criteria for each of these categories.
For individuals who need to submit information to HMRC via the residence and remittance pages on the Self Assessment return, HMRC will not require them to join MTD until April 2027.
For taxpayers with other sources of income outside their MTD income, these should be reported at the end of the tax year via their Self Assessment return, alongside any necessary business income adjustments.
- Software must be used to submit quarterly updates of taxpayers' MTD income sources.
- Previously, there was the option to submit a final Self Assessment return using HMRC's online filing service.
- From April 2026, changes will be implemented that require MTD users to submit their Self Assessment return through their MTD software.
- Not all MTD software will support both quarterly filing and Self Assessment filing.
- MTD users will be able to chose more than one MTD software to meet the Self Assessment filing requirements.
- HMRC believe this will allow for a better taxpayer journey by providing consistency and maximising productivity.
Other changes to be brought into effect from April 2026:
- Taxpayers with an accounting date of 31 March will be able to operate MTD from 1 April in the first year of operating MTD. This is to avoid the burden of manual adjustments at the year end.
- HMRC will be granted the power to cancel or reset late submission penalty points and cancel any associated financial penalties.
- There will be an increase in late payment penalties for MTD for both VAT and ITSA to encourage taxpayers to pay their tax on time.
Useful guides on this topic
Making Tax Digital VAT (Subscribers guide)
What is Making Tax Digital for VAT? What is VAT 'functional compatible' software? What do you need to do to report your VAT? Are there penalties for making mistakes?
Making Tax Digital: Planner & Timeline
When does Making Tax Digital (MTD) apply? What does MTD really mean? How will it affect you?
MTD: Toolkit for accountants
What is the current timetable for Making Tax Digital (MTD)? When will MTD for Income Tax become mandatory? How will it work? Which clients will be excluded? What planning needs to be undertaken?
Making Tax Digital for Income Tax: Information required by HMRC
What information should you submit under Making Tax Digital for Income Tax? What are the requirements for relevant persons under the VAT threshold? What are the categories of information required?
External link
Policy paper: Modernising the tax system through Making Tax Digital
