The UK Government is accelerating its rollout of Making Tax Digital for Income Tax (MTD IT) and recent announcements have added greater clarity to the direction of travel, from a threshold drop to no more online filing alternative.
MTD IT Income Threshold to Drop in April 2028
From April 2028, the MTD IT income threshold will fall to £20,000. Currently, only those earning over £50,000 need to comply. When the new threshold takes effect, approximately 900,000 additional taxpayers will fall under MTD rules.
This shift highlights the government’s firm commitment to digitalising tax reporting. Although the current Parliament could run until mid-2029, this earlier rollout signals urgency. Furthermore, the government has hinted that they may reduce the threshold even further in the future.
Who Is Exempt from MTD
Not everyone will need to adopt MTD. The following individuals are officially exempt:
- Taxpayers who have granted Power of Attorney
- Non-UK resident entertainers and sportspeople with no other UK taxable income
- Taxpayers HMRC considers unable to use digital services
The third exemption is still unclear. HMRC will require individuals to both notify them and demonstrate why they cannot comply digitally. More guidance to come should clarify this area.
Temporary Deferrals for Specific Groups
In addition to permanent exemptions, the government has announced temporary deferrals for certain taxpayers. These groups will not need to follow MTD rules during the current Parliament:
- Ministers of religion
- Lloyd’s underwriters
- Those receiving the Married Couple’s Allowance or the Blind Person’s Allowance
- Taxpayers submitting the SA109 form (covering UK residence and remittance basis) – Deferred until April 2027
The Move to a “Full Software Journey”
Initially, it was believed that although third-party software would be needed for quarterly updates, the final tax return could still be submitted via HMRC’s online service.
That is no longer the case. HMRC has confirmed it will not offer any online filing option for year-end returns under MTD. Instead, all taxpayers within the MTD regime must:
- Record income and expenses digitally
- Submit updates every quarter
- File the final return using compatible software
This presents new challenges. Not all software currently listed as MTD-compatible can complete the full process. Many are limited to quarterly submissions only. As a result, taxpayers must either:
- Purchase software that supports the full MTD process, or
- Use 2 different software solutions: one for quarterly updates and another for year-end filing
The Impact of the MTD IT Threshold on Lower-Income Taxpayers
The upcoming £20,000 threshold brings a particular challenge, as many lower-income taxpayers do not have access to professional advice and will likely seek the most affordable software options available.
However, cheaper or free software tools may only support part of the MTD process. Regardless, the chosen software must fully comply with MTD requirements, covering both quarterly updates and the final submission to remain compliant.
If users are unaware of this limitation, they may believe they are compliant, only to discover near the deadlines that they cannot submit their final return.
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