Making Tax Digital for Income Tax regime extended to smaller businesses

The Spring Statement announced that Making Tax Digital for Income Tax (MTD for IT) regime will be further extended to smaller businesses.

Read on to see how and when your business might be affected.

What is MTD for IT?

Making Tax Digital for Income Tax (MTD for IT) is a government initiative that requires self-employed individuals and landlords with income over a certain limit to keep digital records and submit quarterly tax updates to HM Revenue and Customs (HMRC) using compatible software.

Who does MTD for IT apply to?

These rules are mandatory and come into effect from 6 April 2026 for sole traders and property landlords who generated trade and rental income of more than £50,000 in the 2024/25 tax year.

This income threshold will then drop so that sole traders and property landlords with income of more than £30,000 in the 2025/26 tax year will be brought into MTD for IT from 6 April 2027.

The Spring Statement has now confirmed that this threshold will be reduced further so that sole traders and property landlords with income over £20,000 in 2026/27 will have to comply with the rules from 6 April 2028.

MTD for IT will also affect how tax returns are submitted

It has also now been confirmed that if you are required to use MTD for IT, your end-of-year tax return must also be submitted using MTD-compatible software. It won’t be possible to use a free HMRC online service.

What can you do?

This may be a big adjustment in the way you keep your accounting records. Please feel free to get in touch if so. We would be happy to provide advice, recommendations and training, if needed, so that you can meet this new requirement with the minimum hassle and stress.