Making Tax Digital for Income Tax: Updates from the Chancellor’s Spring Statement

Following the announcements in the Chancellor’s Spring Statement, we look at the latest developments on Making Tax Digital for Income Tax that you need to be aware of.

Despite the timescales changing over the years, it’s clear there’s now no going back on Making Tax Digital (MTD) for Income Tax. Unless exempt, MTD for Income Tax will mean that sole traders and landlords will be required to maintain digital records using compliant software and submit quarterly updates to HMRC from April 2026 (for those with a gross income above £50,000) and April 2027 (for those with a gross income above £30,000). The 2025 Spring Statement announced that the MTD income threshold will reduce to £20,000 from April 2028.

How the MTD income thresholds will apply in practice

It's important to bear in mind that the gross income of a sole trader/landlord in the 2024/25 tax year will dictate whether they’ll be required to meet the requirements of MTD for Income Tax in 2026/27 tax year. This means that the income reported on the tax returns that will be due for submission by 31 January 2026 will form the basis of any MTD obligations from 6 April 2026, even if their income in the 2026/27 tax year is below the £50,000 threshold.

Once a sole trader or landlord is within MTD for Income Tax, it’ll be necessary to meet the MTD requirements for at least three tax years. This is because, in order to claim an income exemption subsequently, it’s necessary for the taxpayer's income from self-employment and property to be below the threshold for at least three tax years. As a result, the earliest that a taxpayer who finds themselves in the MTD for Income Tax regime in 2026/27 could opt out of MTD is the 2029/30 tax year.

When assessing these thresholds, gross income from both self-employment and rental income are counted for the purposes of the threshold, but income from an employment, a partnership or dividend income are not included. 

Volunteer to join MTD for Income Tax early

We encourage our members to take part in HMRC’s trial for MTD for Income Tax. Doing so will allow your practice to properly prepare and test the compatibility of your own systems (and those of your clients) ahead of implementation. If every tax agent volunteered to put a handful of clients into the trial, this would give HMRC a broad spectrum of sole traders and landlords to ensure thorough testing during the period where a more lenient penalty system is in place.

Taking part in the testing phase will also give you access to HMRC’s dedicated MTD support team, which will be able to provide the taxpayers involved in the trial with full self-assessment support, as well as guidance on MTD matters. This support is only available for those clients who are taking part in the trial, not all clients of an agent who is taking part in the trial.

You can sign up your business or your client's business for MTD for Income Tax on the HMRC website.

Make sure to sign up clients ahead of time 

MTD for Income Tax is not just a case of starting to send quarterly updates to HMRC. Each sole trader/landlord must be registered with HMRC in advance – this isn’t just those who are signing up for the HMRC trial, but those who’ll be legally required to submit quarterly updates from April 2026. Sign up can be one tax year in advance, so those sole traders and landlords who’ll be required to submit quarterly updates from April 2026 can sign up from April 2025.

If the taxpayer has multiple income sources, you’ll need to sign up each one for MTD for Income Tax. 

Clients who have multiple agents acting for them

From April 2025, it’ll be possible to have multiple agents acting for a client (such as an accountant and a bookkeeper) as HMRC will allow both a main agent and supporting agents to be registered to act, although the information they can access will be different. 
If a main agent has already been authorised to act on behalf of the client on HMRC’s legacy Self-Assessment system, it won’t be necessary to register again for MTD for Income Tax as HMRC has advised that it’ll be possible to carry across the existing agent authorisation.

Exemptions from MTD

A business is exempt from MTD for VAT where it’s not practical to keep the business records or submit VAT returns digitally, such as due to age, disability or location. An exemption also applies where the business is run entirely by practising members of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records.

A similar exemption for taxpayer who are digitally excluded will apply for MTD for Income Tax and HMRC has confirmed that VAT registered businesses who are digitally excluded and exempt for MTD for VAT will automatically be exempt from MTD for Income Tax.

The 2025 Spring Statement announced the expansion in the exemptions for MTD for Income Tax. Exemptions will now be available to taxpayers who have a Power of Attorney, non-UK resident foreign entertainers and sportspeople who have no other income sources that count as qualifying income for MTD and taxpayers for whom HMRC cannot provide a digital service. Taxpayers who are ministers of religion, are members of Lloyd’s Underwriters or are recipients of the Married Couples’ Allowance and recipients of the Blind Persons’ Allowance will not be required to submit quarterly updates under MTD for Income Tax for the duration of this Parliament. 

Automatic exemptions for MTD for Income Tax will also apply where a taxpayer does not have a National Insurance number on the 31 January before the start of the tax year, as well as foster carers, non-resident companies, trustees and the personal representatives of a deceased estate.

Details of how to claim exemption for MTD for Income Tax for those exemptions that do not apply automatically will be confirmed ahead of the legal requirement starting in April 2026.

Other MTD changes announced in the Spring Statement

The Spring Statement also announced the withdrawal of HMRC’s online filing service to submit their final tax return. Taxpayers will now be required to use third party software for their tax return. While the government believes this will provide a better customer journey, we do have concerns that this will increase the costs of complying with MTD for Income Tax, which could in turn discourage sole traders and landlords from signing up earlier than they are legally required to. To help support sole traders and landlords in managing this change, we would like to see an improvement in the information provided on software options on the HMRC website so that taxpayers and their agents have improved information on the options available. 

Further changes to the design of MTD and penalty reform were also announced. These include changes to enable taxpayers with an accounting date of 31 March to start their MTD obligations on 1 April in the first year of operating MTD and a power for HMRC to cancel or reset late submission penalty points and to cancel associated financial penalties. 

The government also announced that late payment penalties for VAT and Income Tax self-assessment taxpayers as they join Making Tax Digital from April 2025 onwards will increase. The new rates will be: 

- 3% of the tax outstanding where tax is overdue by 15 days; plus
- 3% where tax is overdue by 30 days; plus
- 10% per annum where tax is overdue by 31 days or more.

Supporting our members

As the legal requirement to comply with the MTD regulations draws closer, we’ve been providing our members with the latest information and resources to get ready for MTD for Income Tax. 

To make it easier for you to find the information that you and your clients need to navigate this important tax change, we are delighted to launch our MTD Hub next week which brings together the guidance covering which businesses are required to comply with the MTD requirements and from when. There’s also details of upcoming events and software options that work with MTD for Income Tax.

We also hosted Craig Ogilvie, HMRC’s MTD Director, for a webinar on 25 March 2025, covering several issues for you to consider as you prepare your practice for the requirements of MTD. The recording is available for on-demand viewing on our website.

Let us know your views

We welcome your views, which help inform our work on consultations or other tax-related matters. We responded to many tax calls for evidence and consultations, as well as producing tax policy papers and reports. We also regularly attend meetings with HMRC at which service levels, delays and other issues are discussed, and we raise problems being encountered by members.

 

Please get in touch to share your insights and feedback.

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