Government to Implement MTD for IT with Lower Threshold

The UK government has announced that Making Tax Digital for Income Tax (MTD IT) will be implemented in April 2028, covering sole traders and landlords earning over £20,000 a year.

This is a stark contrast to the previous threshold of £50,000, affecting around 900,000 taxpayers. So, let us explore what is behind this move.

Main Facts of the Announcement

As part of Chancellor Rachel Reeves's Spring Statement, the government has laid out a clear timescale for the rollout. The first cohort of taxpayers will need to meet MTD IT in the 2026/27 tax year, with their first digital tax returns due by January 2028. Just two months later, the lower threshold will be introduced, bringing in an additional half a million taxpayers to the system.

This shift speeds HMRC's mission to digitise tax administration in its entirety, although there is still concern about implementation issues, accessibility, and compliance expenses.

New Deferrals and Exemptions

To facilitate ease of transition, the government introduced certain exemptions. These include:

• Individuals with powers of attorney
• Non-resident sports professionals and entertainers with no UK-based revenue
• Taxpayers for which HMRC are unable to make a digital service available

However, the conditions under which the "digital service unavailable" exemption may be applied remain unclear, and this is a cause for concern for access to those who cannot opt for Making Tax Digital services.

In addition, temporary deferrals have been provided to some groups, including:

• Ministers of religion
• Lloyd's underwriters
• Beneficiaries of the Married Couple's Allowance or Blind Person's Allowance
• Taxpayers who are required to file SA109 forms (typically non-residents and remittance basis individuals), who will not be included in MTD until April 2027.

HMRC to Stop Direct Online Filing for MTD Returns

One notable change is HMRC's decision not to provide an online tax filing service for MTD taxpayers. Taxpayers will instead be wholly reliant on third-party software for quarterly returns and final self-assessments—a change referred to as a "full software journey.".

This action has raised serious concern among accountants and taxpayers because not all approved MTD software is yet compatible with end-to-end submission. Tax professionals foresee this will lead to confusion since most taxpayers will discover too late that their chosen software lacks final submission features.

Professional bodies, such as the Association of Taxation Technicians (ATT), have been complaining to HMRC about inadequate coverage of low-income taxpayers and those with complex tax affairs.

Conclusion: Future of Digital Tax Compliance

The reduction of the MTD threshold to £20,000 is unlikely to be the final one. Government remarks suggest that future extensions could also cover those earning below this level, and as many as four million more taxpayers in future years.

At the same time, HMRC is consulting software suppliers and professional bodies for refining its roster of accepted digital taxation solutions. It is scheduled to issue updated guidance in coming months to make tax accountants and taxpayers well prepared for migration.

With the April 2028 deadline now in place, the clock starts ticking. But the pressure is not just on taxpayers, as pressure also mounts on HMRC to deliver a seamless, cost-efficient, and accessible shift to digital-only tax reporting.