MTD Expansion: What Spring Statement 2025 Delivered

Rachel Reeves’s Spring Statement was supposed to be all about the economy. However, tucked away in the fine print were some big surprises for taxpayers: those affected by Making Tax Digital for Income Tax (MTD IT).

The government confirmed the income threshold for MTD will fall to £20,000 from April 2028, pulling an extra 900,000 sole traders and landlords into the digital tax system. There were also new exemptions and deferrals, as well as a major change to how year-end tax returns will be filed.

Here’s what you need to know and what it means in practice.

Lower Threshold, Earlier Than Expected

Last year’s Autumn Budget hinted MTD would expand to those earning more than £20,000, but we didn’t have a firm date. Now it’s official: April 2028 is when the change kicks in.

That’s earlier than many expected. The current Parliament could run until the summer of 2029; thus, some had hoped for a later rollout. However, the government seems keen to push ahead with digital tax reforms.

The first wave of taxpayers -- those with income over £50,000 -- will enter MTD in April 2026, and their first digital returns are due by 31 January 2028. That leaves just two months before the threshold slides to £20,000, piling pressure on HMRC to iron out any kinks before the next wave joins.

And that might not be the end of it. The government has said it’s still looking at how to bring 4 million sole traders and landlords earning under £20,000 into the digital fold. If you’re currently below the threshold, don’t assume you’ll stay exempt forever.

Who Gets a Pass? New Exemptions & Deferrals

As MTD’s rollout nears, HMRC has acknowledged some people will struggle with the switch. So, it has introduced new exemptions and delays for certain groups.

Who Are Exempt?

• Taxpayers with the power of attorney
• Non-UK resident entertainers and sportspeople (as long as they have no other income caught by MTD)
• Those for whom HMRC “cannot provide a digital service” (more updates are expected on this at a later date)

The last exemption is vague in that HMRC hasn’t clarified who exactly qualifies. Affected taxpayers will have to “notify and satisfy” HMRC that they should be exempt. However, one should consult professionals before deciding on one's exemption status.

Who Gets Extra Time?

Ministers of religion, Lloyd’s underwriters and those claiming Married Couple’s or Blind Person’s Allowance won’t have to join MTD during this Parliament. People who file an SA109 (residence/remittance basis pages) get a deferral until April 2027.

This makes sense as some tax situations are trickier to digitise. But there’s still confusion for non-residents with an income above £50,000. Will they be mandated in 2026 or 2027?

No HMRC Online Filing for MTD Taxpayers

HMRC won’t provide an online service for filing your year-end tax return under MTD.

Originally, taxpayers were supposed to have a choice: use third-party software for quarterly updates and then file the final return either through software or HMRC’s online portal. Now, only software will be allowed. HMRC calls this the “full software journey.”

Why This Is a Problem

Not all MTD-approved software can file a full tax return. Some only handle quarterly updates. That means some taxpayers will need two different software packages: one for updates and another for the final return. Free or low-cost options may be limited, leaving smaller businesses and unrepresented taxpayers in a bind.

The Association of Taxation Technicians (ATT) has warned people could get caught out buying cheap software, only to realise too late that it can’t file their return. HMRC is working with tax bodies and software providers to improve guidance and flag gaps in provision. But with April 2026 fast approaching, time is running out to avoid a last-minute scramble.

What Should You Do Now?

If you’re affected by MTD (or might be soon), here’s how to stay ahead:

• Check if you’re exempt or deferred. If you fall into one of the categories above, you may have extra time
• Research software early. Don’t wait until 2026. Look for packages that provide a full software service (not just quarterly updates)
• Watch for updates: HMRC still needs to clarify some exemptions and filing requirements

Conclusion

The Spring Statement 2025 accelerates the shift to digital tax reporting, with a lower MTD threshold of £20,000 from April 2028 and stricter software requirements.

Some groups receive exemptions and deferrals, but many sole traders and landlords will need to prepare sooner than expected.