Spring Statement: £20k threshold for MTD from 2028

All self employed and landlords with income over £20,000 will have to file quarterly returns under Making Tax Digital for Income Tax from 2028

The government is also looking at extend MTD to those with income less than £20,000, which it wants to pull into the system, forcing them to report quarterly and buy software specifically for the purpose.

As part of the ongoing rollout of MTD, the government said it ‘will continue to explore how we can best bring the benefits of digitalisation to a greater proportion of the four million sole traders and landlords who have income below the £20,000 threshold’. 

MTD for Income Tax will begin in April 2026 for sole traders and landlords, but only those that have an income of over £50,000. This will be extended to those earning over £30,000 in 2027, then reduced to £20,000 in 2028. They will have to file quarterly and do a year end tax return through the system.

HMRC has said this gives those sole traders and landlords ‘the time they need to prepare for the changes’. There are currently 900,000 sole traders who fall into this category, HMRC said.

Certain individual will be exempt from this though as ‘the government believes there are some taxpayer groups who will face disproportionate barriers’.

Those falling under these criteria include people that have a power of attorney, non-UK residents that are entertainers or sports people with no other income, and taxpayers where HMRC cannot provide a digital service.

Additionally, four more groups will not have to join MTD, including ministers of religion, Lloyd’s underwriters, people that receive married couples’ allowance, and blind persons’ allowance.

There are various elements that affect non doms. Therefore those that need to use the SA109 schedule form to record residence and domicile status, to submit their data will also be able to defer until 2027 even if their income is over £50,000 next year.

On the non dom issue, in the policy document, HMRC states: ‘Individuals will not be required to use MTD until April 2027 if they have information that they would need to submit using the SA109 schedule. HMRC will work with stakeholders to finalise the design of a one-year deferral for these groups. This allows time to incorporate into MTD the government’s changes to the taxation of non-UK domiciled individuals.’ 

MTD requires affected taxpayers to file four times a year using the software and also file their annual tax return through software, which HMRC says will ‘improve the customer journey’. There will be legislation for this introduced before MTD for income tax begins in 2026.

Roan Lavery, CEO and co-founder of FreeAgent, said: ‘Any SMEs who were expecting some good news in terms of tax relief or business support will be very disappointed. Considering many small businesses are still struggling with the cost of living crisis and the volatile global economy, there are very few crumbs of comfort to be found from the Chancellor’s speech.’

The Association of Taxation Technicians (ATT) has warned the 2028 rollout date does not give enough time to conduct an effective review of MTD and means any potential problems are likely to be rolled over on to subsequent cohorts of taxpayers.

Emma Rawson, director of public policy for the AAT, said: ‘The announcement in the Spring Statement came as a surprise – almost one million more taxpayers are due to be brought into the scope of MTD in April 2028, just two months after the first wave of taxpayers have completed their first compliance cycle under the new regime.

‘We’re concerned this rushed timetable won’t allow for sufficient time to review outcomes for the first group of MTD taxpayers, and to make any changes needed before the newest cohort comes in. This risks exacerbating any initial problems with the regime.

‘The April 2028 expansion of MTD will also bring in lower income taxpayers, who may be less able to afford professional advice and specialist software to help them transition to and comply with MTD.

‘This makes having an efficient, simple MTD compliance process and clear guidance all the more important.’

Will Drysdale, Senior Reporter, Business & Accountancy Daily