MTD Income Tax Threshold Lowered to £20k (April 2028): Your Action Plan

ARTICLE TITLE: "MTD Income Tax Threshold Lowered to £20k (April 2028): Your Action Plan"

ARTICLE CONTENT: March is your last chance to make the most of this year's allowances.

Remember how Making Tax Digital for Income Tax, or MTD ITSA, always felt like something way off in the future? Like, 'oh, that's not my problem yet' kind of thing? Well, guess what. For hundreds of thousands of self-employed folks and landlords all over the UK, that 'distant worry' is about to get very, very real, and pretty quickly too. From April 2028, it's not some far-off date anymore, and the income threshold for who needs to do it is absolutely plummeting to just twenty grand. Can you believe it? It's a proper headache for so many people. However, the government announced in December 2022 that the plan to lower the MTD ITSA threshold to £20,000 (or £10,000) from April 2028 was scrapped, and no new date or threshold for lower-income individuals has been set.

The MTD ITSA Picture: A Quick Look Back

What's Making Tax Digital for Income Tax?

By and large, making Tax Digital for Earnings Tax Self Assessment (MTD ITSA) is a massive shake-up in how self-employed individuals and landlords handle their income tax with HMRC in the UK. It's ditching the old annual tax return for something much more frequent and, well, digital. arguably, the basic idea is pretty straightforward: you've got to keep digital records of your income and outgoings, send updates to HMRC every three months using MTD-compatible software, and then file an End of Period Statement (EOPS) and a final declaration once a year. it seems to me, that matters. to be fair, that final declaration effectively replaces your familiar Self Assessment tax return. For more details, see our Making Tax Digital UK : Sole Traders & Landlords G.

Who's already caught by MTD ITSA?

When all's said and done, mTD ITSA has had its fair share of delays and tweaks to its launch dates. Originally, sole traders and landlords earning over £10,000 were meant to start from April 2024, with general partnerships following in April 2025, which is something that catches a surprising number of people off guard when they first encounter it. let's be honest — but that's all changed. For more details, see our Spring Statement : Complete Guide to Every Tax Cha.

On the whole, as of 2025/26, MTD ITSA is voluntary for all, with mandatory start dates of April 2026 for income over £50,000 and April 2027 for income over £30,000 (updated for 2025/26). There is no mandatory start date for MTD ITSA for self-employed individuals and landlords with income below £30,000, and that's before you even factor in the additional complications that arise from the interaction with other reliefs and allowances. So, if your income lands in those brackets, you'll need to get ready sooner rather than later. Here's why. For more details, see our New Property Income Tax Rates from April : Landlor.

The Big Drop: £20,000 Threshold from April 2028

Getting Your Head Around the New £20,000 Threshold

HMRC has told us that the MTD ITSA threshold was planned to be cut to £20,000 (which is actually more straightforward than it sounds). This was intended to come into play for accounting periods starting on or after 6 April 2028. What does that mean for you? It means if your gross income from self-employment and/or property goes over £20,000 in the 2025/26 the tax year for this before 2028/29, you'll need to play by MTD ITSA rules from April 2028. However, this policy has since been abandoned, and there is no mandatory MTD ITSA threshold of £20,000.

It's really important to grasp that this threshold is about your gross income – that's your turnover – not your profit. So, even if your costs are high and your actual profit is quite small, you'll still be pulled into MTD ITSA if your gross income sails past that £20,000 mark. (not always straightforward, admittedly) General partnerships with gross income above the MTD ITSA threshold will also have to join. Not quite. The current plan is for partnerships to join from 6 April 2027 if their gross income is over £50,000, and from 6 April 2028 if their gross income is over £30,000. It's expected that the £20,000 threshold will also apply to partnerships from 6 April 2028.

Who Will Feel This Most?

This cut to £20,000 was set to drag a huge number of smaller businesses and landlords into the MTD ITSA system. While HMRC hasn't given us a precise number for the £20,000 threshold, the original sums for the £10,000 threshold suggested millions would be affected. The current phased launch (over £50k, then over £30k) is thought to bring in over 4 million businesses. Big difference. The £20,000 threshold would definitely scoop up hundreds of thousands more, many of whom might have thought their tax affairs were pretty simple until now. This includes part-time sole traders, small-time landlords, and those juggling various income streams.

Why the Change? HMRC's Thinking

HMRC's long-term aim is to be one of the most digitally switched-on tax departments in the world. MTD is a big part of that plan, pushing for a fully digital tax system where we all manage our tax online almost in real-time. (easier said than done, of course) The idea is to make it easier for people and businesses to get their tax right and to shrink the tax gap. Worth knowing.

So, listen, you know that whole 'tax gap' thing? Well, for Pay Tax, National Insurance, and Capital Gains Tax, it was a whopping 4.9% – that's £18.4 billion! – back in 2021-22. HMRC's big hope is that MTD will shrink that. Honestly, it's a huge chunk of change. the thing is — and they're always banging on about the good stuff for us, like how we'll apparently see our tax situation way clearer and faster, make fewer blunders because everything's digital, and even plan our finances and cash flow better. Sounds great, right? They're even predicting MTD ITSA will rake in an extra £1.5 billion in tax revenue between 2023-24 and 2027-28. What do you think? I mean, if it actually works as they say, fair play.

Are You Affected? A Handy Checklist for 2028

Working Out Your Gross Income for MTD ITSA

To figure out if you're caught, you need to work out your gross income. For MTD ITSA, 'gross income' means the total money your self-employment brings in and the total gross rent from your property, before you take off any costs. (a common sticking point for many) This isn't your profit, it's the whole amount your business or property generates. Exactly.

:::calculator MTD ITSA Threshold Check: 1. Find all self-employment income: Add up all your turnover from sole trades, freelance work, or any other self-employed activity. 2. Find all UK property income: Add up all the gross rents you've received from residential or commercial properties. 3. Put them together: Add these totals up. If the combined figure for your previous tax year (say, 2027/28 for the 2028/29 start) goes over £20,000, you'll be mandated for MTD ITSA. (Note: The £20,000 mandatory threshold has been abandoned.) ::.

Scenarios: Self-Employed, Landlords, and Mixed Income

* Self-Employed: If you're a sole trader or freelancer, your gross income is your total sales or fees before you take off any business costs. Say, a graphic designer with £22,000 gross income in 2027/28 would have needed to comply from April 2028. * Landlords: Your gross income is the total rent you get. If you own a few properties, you add up the gross rents from all of them. A landlord with two properties bringing in £12,000 and £9,000 respectively (that's £21,000 in total) would have been impacted. * Mixed Income: If you've both self-employment and property income, you combine the gross totals from both. If this combined figure goes over £20,000, MTD ITSA would have applied to both income streams.

What If Your Income Goes Up and Down?

For those whose income isn't steady, HMRC's guidance says the threshold for the tax is based on your gross income for the previous tax year. If your gross income dips below the threshold in a later year, you might be able to leave MTD ITSA. but, if your income starts below the limit but then jumps above it in a later tax year (say, a sole trader with £18,000 in 2027/28, then £25,000 in 2028/29), you'll be told to join MTD ITSA from the start of your next accounting period after the year you went over the cap (so, from 6 April 2029 if your accounting period is the tax year). Not always.

New businesses starting after 6 April 2028 would have needed to think about their expected gross income. If their first year's gross income is likely to be over £20,000, they would have needed to follow MTD ITSA rules from day one, though the practical reality of how this works in practice is rather more complicated than the headline figure might suggest.

Key Exemptions to MTD ITSA

Not everyone has to join MTD ITSA. Things like estates, trusts, non-resident companies, and people who can't use digital tools are exempt. (and yes, that's as confusing as it sounds) This inability could be down to age, disability, or living somewhere remote, or if it's just not practical for them to use digital tools — and if you've ever tried to work through the calculations yourself, you'll know exactly what I mean. Some specific religious groups might also be exempt. The full list of exemptions will be laid out in secondary legislation.

Beyond the Basics: What MTD ITSA Means for Your Day-to-Day

Digital Record Keeping: Your New Way of Working

So, with this MTD ITSA thing, you're basically stuck with keeping all your income and costs on digital records, right? No more dusty old paper ledgers or those basic spreadsheets that aren't talking to HMRC. Everything's gotta be on MTD-compatible software. Seriously. Your digital records need to show the date, how much, and what kind of transaction it was for every single item. If you's still doing things on paper, you'll have to get it all digital – scanning receipts and invoices, that sort of palaver. It's meant to cut down on errors and give you a quicker, clearer look at your finances, which, honestly, surprises loads of people when they first hear about it. What a faff, eh?

Quarterly Updates: A New Filing Beat

So, the big one, right? They's ditching the yearly Self Assessment. Can you believe it? Instead, you'll be telling HMRC about your earnings and what you've spent every three months. Yeah, four times a year. These 'quarterly updates' aren't proper tax returns, thankfully; they're just quick summaries from your digital records for each quarter. Bit of a faff. But it means you'll have to be way more on top of your books and checking your finances all year round, instead of that usual panic-stricken scramble just before the deadline for this. What a pain, eh? For more details, see our Self Assessment Tax Return : Complete Filing Guide.

Choosing MTD-Compatible Software

To stick to MTD ITSA, you absolutely must use MTD-compatible software. This software talks directly to HMRC's systems to send your quarterly updates. There's a whole load of options out there, from basic bookkeeping apps to more complete accounting packages, and that's before you even factor in the additional complications that arise from the interaction with other reliefs and allowances. Good question.

HMRC has a list of approved software providers on GOV.UK. When you's choosing, think about how easy it's to use, what features it's, how much it costs, and what kind of help you can get. Many providers offer free trials, which can be a godsend for trying it out before you commit. Hardly.

The End of Period Statement & Final Declaration

After you've sent your four quarterly updates, you'll have two more annual submissions to make. First, an End of Period Statement (EOPS) for each income source (so, one for your self-employment, one for your property income, say), though the practical reality of how this works in practice is rather more complicated than the headline figure might suggest. Here you sort out any accounting adjustments and finalise your pay and costs for the tax year. Classic mistake.

Second, you send a Final Declaration. This declaration includes all your other income (like wages or savings interest) and claims for reliefs, effectively replacing the old Self Assessment tax return — and if you've ever tried to work through the calculations yourself, you'll know exactly what I mean. This two-step annual wrap-up makes sure all your tax affairs are brought together.

Penalties for Not Playing Ball: What You Need to Know

HMRC is bringing in a new points-based penalty system for late MTD ITSA submissions. For every late submission (quarterly update, EOPS, or Final Declaration), you get a point. Once you hit a certain number of points (like 4 points for annual submissions), you'll get a £200 fine, which is something that catches a surprising number of people off guard when they first encounter it. Think again.

Points disappear after 24 months— actually, let me rephrase that: as long as you've met all your obligations. Fines for late payment and inaccurate records will also apply, much like the current rules. It's a system designed to get you to comply on time, so knowing the deadlines and making sure your software is set up right is absolutely key. Spot on.

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Getting Ready for 2028: Your Smart Plan

Review Your Current Record-Keeping

For those caught by the £20,000 threshold from April 2028, it's a good idea to start getting ready now, and that's before you even factor in the additional complications that arise from the interaction with other reliefs and allowances. The first thing to do is take an honest look at how you right now keep records. Are you still using paper invoices, simple spreadsheets, or an old system? Not so fast.

MTD ITSA demands digital records. Tips for going digital and setting up new ways of working include scanning paper invoices and receipts, using cloud storage, linking your bank accounts to accounting software automatically, and creating a consistent digital flow for all your revenue and expense transactions. Regularly checking your digital records against your bank statements is important.

Looking Into and Picking MTD Software

This is a big decision. Start by looking at software that HMRC recognises. Compare what features they offer, how much they cost, and what support you'll get, though the practical reality of how this works in practice is rather more complicated than the headline figure might suggest.

Many software providers let you try before you buy, which is brilliant for testing the system for this and seeing if it works for your business — and if you've ever tried to work through the calculations yourself, you'll know exactly what I mean. Look for software that's easy to use, gives you good reports, and can handle your specific income streams. Don't rush this; the right software can make your MTD experience so much easier. That matters.

Talking to Your Accountant or Tax Advisor

Getting professional advice is highly recommended. Your accountant or tax advisor can help you pick software, set up your digital record-keeping, make sure you're compliant, and even train you, which is something that catches a surprising number of people off guard when they first encounter it. They can also help you through tricky tax situations or if you've lots of different income, ensuring a smooth move. Many accountants are already clued up on MTD for VAT and are getting ready for ITSA, so they can offer priceless guidance.

Training and Learning for Digital Reporting

Even with the best software, there's always a bit of a learning curve. Software companies usually have loads of training materials, like tutorials, webinars, and help guides, and that's before you even factor in the additional complications that arise from the interaction with other reliefs and allowances. HMRC also offers general guidance and webinars on what MTD ITSA needs. Here's why.

Spend some time learning how to use your chosen software properly. This might mean dedicated training sessions or just getting to know the system and its features, though the practical reality of how this works in practice is rather more complicated than the headline figure might suggest. The better you understand it, the less stressful the change will be. Not quite.

Financial Planning: Budgeting for MTD Costs

MTD ITSA will probably bring some new costs. You should set aside money for potential software subscription fees, which could be anything from a few quid to tens of pounds a month, depending on what you need and who you go with. If you use an accountant, their fees might go up because of the extra quarterly submissions and the initial setup work. Big difference. Make sure you factor these costs into your business plan for the next few years.

Thinking About Joining Early

You can choose to adopt MTD ITSA early if you want. There are good points and bad points to doing this. On the plus side, it lets you get ahead, get used to the system without the pressure of compulsory deadlines, and maybe even find ways to be more efficient. Worth knowing.

It can also give you a head start on training. But on the downside, you might end up paying for software before you strictly need to, there could be early system glitches, and you'll have that learning curve without being forced to. Chat about this with your accountant to see if it makes sense for your particular situation. Fair point.

:::action-checklist Your MTD ITSA Preparation Checklist: * Work out your gross income: Confirm if you'll go over the £20,000 threshold from April 2028. (Note: The £20,000 mandatory threshold has been abandoned.) * Check your current records: See what needs to be digitised or tidied up. * Look into MTD software: Explore options on HMRC's approved list, compare features and prices. * Talk to your accountant: Discuss your MTD plan and possible costs. * Plan for training: Set aside time to learn your chosen software. * Budget for new costs: Account for software subscriptions and potential higher accountancy fees. * Think about joining early: Weigh up the pros and cons for your business. ::.

Beyond 2028: What Else Could Be Coming?

The Future of MTD: Even Lower Thresholds?

So, listen, there aren't any official plans for more cuts to that £20,000 threshold right now, which is a relief, I guess. But honestly? Tax digitisation, or MTD as they call it, always just spreads. It's like a slow-moving blob. They usually chip away at those thresholds, bit by bit. Don't you think? It's a long-term thing for HMRC, and any future government could easily decide to drag even more people into it. Exactly. So, yeah, keep an eye on their announcements. It's never simple, is it?

More Digitalisation: Other Taxes

HMRC's grand plan for MTD includes bringing in other types of tax. While not confirmed for MTD yet, Corporation Tax is often mentioned as a likely candidate for future digitisation, following on from VAT and ITSA — and if you've ever tried to work through the calculations yourself, you'll know exactly what I mean. The overall aim is a fully digital tax system, so it's fair to expect other taxes to eventually come under the MTD umbrella. Not always. This points to a bigger move towards digital interactions with the taxman across all tax systems.

Staying Ahead of the Curve

So, HMRC's actually chucking some cash into AI, right? They're hoping it'll make things smoother for compliance stuff and even improve how they deal with us, the taxpayers. And, honestly, the whole MTD digital system is basically laying the groundwork for all this tech to really take off. AI and automation? They're definitely going to be a massive deal in tax compliance down the line. Imagine, it could make logging data, sorting out transactions, and even predicting tax planning way easier. Pretty neat, huh? Businesses that get on board with digital tools now, they're going to be in a much better place when these changes really hit. Less faff. It's not just about doing MTD ITSA because you have to; it's genuinely about prepping for what's coming next in tax.

:::did-you-know HMRC's long-term aim is to become one of the most digitally advanced tax administrations in the world, making it easier for people and businesses to get their tax right and reducing the tax gap. MTD is a big part of that plan. ::.

FAQ

What's the new MTD Income Tax threshold from April 2028?

So, listen to this – HMRC were at it again. From April 6th, 2028, they were planning on dropping the Making Tax Digital thing for Revenue Tax Self Assessment, MTD ITSA, down to a measly £20,000. Can you believe it? Basically, if your total gross income, that's your turnover from being self-employed or any property you rent out, goes over twenty grand in the tax year before 2028/29, you're in. You would have had to start doing MTD ITSA from that date. What a faff, right? It's just another headache for small businesses. However, this policy has since been abandoned, and there is no mandatory MTD ITSA threshold of £20,000.

How do I calculate my gross income to see if I'm affected by MTD ITSA?

Your gross income for MTD ITSA is the total money your self-employment brings in and the total gross rents from all your UK property income, before you take off any costs. You need to add these figures together. If the combined total for your previous tax year is over £20,000, you're affected. Remember, this isn't your profit, but your total revenue. (Note: The £20,000 mandatory threshold has been abandoned.)

What kind of software do I need for Making Tax Digital for Earnings Tax?

Right, so you'll definitely need MTD-compatible software. What's that, you ask? Basically, it's special accounting or bookkeeping software that's smart enough to keep all your earnings and cost records digitally, and it can chat directly with HMRC's systems to ping over your quarterly updates. Pretty neat. HMRC even has a list of approved providers on GOV.UK, so you don't have to guess. But here's the thing: you can't just use a basic spreadsheet that isn't hooked up to this kind of software. And you certainly can't just type stuff straight into HMRC's portal. No, that won't fly.

Can I still use spreadsheets for my records under MTD ITSA?

No, not on their own. While you might use spreadsheets to jot down some initial data, these spreadsheets must be linked to MTD-compatible software via an API (Application Programming Interface) to send the required information to HMRC. The main thing is that your records are kept digitally within MTD-compatible software, which includes bridging software for spreadsheets. Just keeping records in a standalone spreadsheet won't cut it.

What are the penalties if I don't comply with MTD ITSA rules?

HMRC will bring in a new points-based penalty system for MTD ITSA. You'll get a point for each late submission (quarterly update, End of Period Statement, or Final Declaration). Once you hit a certain number of points (like 4 points for annual submissions), you'll get a £200 fine, which is something that catches a surprising number of people off guard when they first encounter it. Points disappear after 24 months. Plus, fines for late payment of tax and inaccurate records, similar to what we've now, will also apply.

Do landlords with property income below £20,000 need to join MTD ITSA from 2028?

No. If your total gross rental income from all UK properties is consistently below £20,000 a year, you won't be forced to join MTD ITSA from April 2028. You can carry on sending your tax information via the old annual Self Assessment system. but, you can choose to adopt MTD ITSA early if you fancy it. Tricky one. (Note: The £20,000 mandatory threshold has been abandoned.)

When should I start preparing for the MTD ITSA £20k threshold change?

Honestly, you really should start getting your ducks in a row now. I know the official date for the £20,000 threshold isn't until April 2028, but trust me, figuring out what you actually need, checking out MTD-ready software, and getting your records digital isn't a quick job. It takes time. Getting ahead of it all makes the whole switch so much easier, reduces the panic, and gives you ages to choose the best software and get comfy with the new system without feeling rushed. Why wait? And you won't be scrambling at the last minute. (Note: The £20,000 mandatory threshold has been abandoned.)

Key Takeaways

So, MTD ITSA, right? It's a big deal. They were planning on dropping the ceiling to twenty grand, which means loads more self-employed folks and landlords were gonna have to send in digital updates every three months. That's a lot of quarterly reporting! However, the plan to lower the threshold to £20,000 from April 2028 was scrapped. Are you absolutely sure your current record-keeping is up to snuff for HMRC's new rules, or should we just have a quick natter about it and get you sorted?