The Impact of MTD in the Spring Statement 2025 UK
- PTA
- Apr 1
- 22 min read
Index:
Why Making Tax Digital is a Game-Changer for UK Sole Traders and Landlords by 2028
How Quarterly Reporting Will Work Under MTD—and What UK Sole Traders and Landlords Need to Do Now
Real-World Impact of MTD: Case Studies, Cash Flow Planning, and Overtaxing Fixes
MTD and Property Income: What Landlords, Airbnb Hosts, and Side-Hustlers Must Do Before 2028
The Audio Summary of the Key Points of the Article:
Listen to our podcast for a comprehensive discussion on: The Impact of MTD in the Spring Statement 2025 UK
Why Making Tax Digital is a Game-Changer for UK Sole Traders and Landlords by 2028
What’s Actually Changing with Making Tax Digital?
If you’re a sole trader or landlord in the UK, earning more than £20,000 annually, there’s a serious tax shake-up coming your way. Starting April 2028, you’ll be legally required to keep digital records and submit quarterly tax updates to HMRC via Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA). But here’s the kicker: penalties will kick in before that, as highlighted in the Spring Budget 2024—the equivalent of the Spring Statement 2025.
Hey, don’t sweat it! This guide will walk you through every angle, starting with what this shift means for your bottom line—because tax isn’t just policy, it’s personal.
The Basics: Who’s Affected and When?
Here’s the latest from HMRC:
Criteria | What You Need to Know |
Income threshold | MTD ITSA mandatory from April 2028 for sole traders & landlords earning £20,000+ from combined property or self-employment income. |
Voluntary phase | Open since 2024–2025 tax year—early adopters can sign up now. |
Digital records | Required via MTD-compatible software (e.g. QuickBooks, FreeAgent). No paper books allowed. |
Quarterly updates | Replaces the old once-a-year Self Assessment. Due every 3 months. |
Final submission | Known as the End of Period Statement (EOPS) and Final Declaration. Like a digital tax return wrap-up. |
Penalties | Financial penalties for non-compliance to begin before 2028, with details expected mid-2025. |
(Source: HMRC MTD Guidance, verified March 2025)
Why the Government Is Going All-In on Digital Taxation
The idea is simple: reduce tax errors, increase efficiency, and move the UK to a modern tax system. According to HMRC, tax administration errors from manual Self Assessment filings cost the Treasury billions every year. With MTD, the government expects:
More accurate tax returns
Fewer late submissions
A better user experience (in theory!)
Automated adjustments for things like allowable expenses and property deductions
It’s part of a bigger move to modernise the UK economy, much like the push for Universal Credit and digital NHS records.
A Quick Look at 2025 Personal Allowance and Tax Bands
Let’s pause and put some real-world numbers around all this. As of March 2025, here’s what your income tax landscape looks like:
Income Tax Bands (England, Wales, NI)
Band | Income Range | Tax Rate |
Personal Allowance | Up to £12,570 | 0% |
Basic Rate | £12,571 – £50,270 | 20% |
Higher Rate | £50,271 – £125,140 | 40% |
Additional Rate | Over £125,140 | 45% |
Note: Personal Allowance tapers down once income exceeds £100,000.
National Insurance (Self-Employed)
Starting 6 April 2024 (confirmed in Spring Budget 2024):
Class 2 NICs: Abolished
Class 4 NICs:
0% on profits up to £12,570
6% (reduced from 9%) on profits between £12,571–£50,270
2% on profits above £50,270
(Source: HMRC – Check income tax rates)
So what’s the takeaway? MTD won’t affect the amount you pay in tax—but it changes how and when you report it. And with quarterly submissions, errors like emergency tax, incorrect expenses, or missed deductions can be caught sooner.
The £20,000 Threshold: Why It Matters
Here’s the real kicker: the £20,000 threshold isn’t per business or property. It’s combined income across all sole trader and property rental activity.
Real-life Example:
Let’s say you:
Run a part-time photography side hustle: £12,000/year profit
Rent out a flat in Liverpool: £10,500/year profit
Total income: £22,500 → You’re in the MTD zone.
It doesn’t matter if each activity is below £20,000 individually. HMRC adds them together. If you cross the line, you’ll need to sign up to MTD.
Top Concerns from Taxpayers (Pulled from Real Online Queries)
Here’s what people are Googling and asking HMRC:
“What happens if I don’t switch to MTD by 2028?”→ You’ll likely face penalties, expected to mirror those used for VAT MTD: up to £400 per late submission, plus daily interest. These fines will be announced formally later in 2025.
“Do I still need to file a tax return?”→ Yes, but it will be fully digital, broken down into quarterly updates + final submissions. You’ll no longer wait until January to sort your entire tax year.
“Can I use spreadsheets?”→ Kind of. You can use them only if they’re linked to bridging software that’s MTD-compatible.
“What about PAYE income from an employer?”→ That doesn’t count towards the £20,000 threshold. MTD ITSA only looks at self-employed and property income.
HMRC’s MTD Testing and Voluntary Sign-Up: Should You Join Now?
HMRC’s pilot programme is open now for 2024–25 tax year volunteers. If your affairs are simple, it may be worth getting ahead of the curve.
Pros:
Early familiarity with the new system
Access to HMRC support and feedback channels
Potentially fewer errors when MTD becomes mandatory
Cons:
Limited software support still (though major players like Xero, QuickBooks are in)
Not suited for complex setups (e.g. mixed incomes, multiple rental properties)
The Bigger Picture: What’s Next?
The government made it clear in Spring Budget 2024: digital tax reporting is the future. And with the cut to self-employed NICs down to 6%, they’re clearly trying to soften the blow.
You’ve got three years until mandatory compliance—but the penalties may hit sooner, so staying informed now is key. Especially if you’re used to scrambling your books every January.
MTD Impact on UK Sole Traders and Landlords Earning £20,000+ by 2028 with Penalties from 2025 - Graphical Representation
How Quarterly Reporting Will Work Under MTD—and What UK Sole Traders and Landlords Need to Do Now
Welcome to the New Normal: Quarterly Digital Reporting
Now that we’ve unpacked why MTD is happening and who it affects, let’s tackle the how. Under Making Tax Digital (MTD) for Income Tax, the once-a-year tax return ritual is being replaced with four quarterly submissions and a final declaration—all filed digitally.
If you're a sole trader or landlord earning over £20,000 annually, this means a totally new workflow starting April 2028. But trust me, if you wait until 2028 to adapt, you’re in for a rough ride.
Here’s what the new setup looks like—and how to ace it like a pro.
MTD for ITSA: The New Submission Structure Explained
As of the 2028 deadline (but available for early volunteers now), you’ll need to send six reports per year to HMRC:
Submission Type | When It’s Due | What It Includes |
Quarterly Updates (4) | Every 3 months | Income, expenses (digitally recorded) |
End of Period Statement (EOPS) | After 4th quarter ends | Final accounting adjustments, reliefs |
Final Declaration | January 31 (following year) | Confirmed tax liability (replaces Self Assessment) |
All submissions must be sent using MTD-compatible software, not via GOV.UK or paper.
Quarterly Deadlines: Know Your Dates
Let’s say your accounting year runs April to April (most common). Here’s how your deadlines line up:
Period | Dates Covered | Submission Due |
Q1 | 6 April – 5 July | 5 August |
Q2 | 6 July – 5 October | 5 November |
Q3 | 6 October – 5 January | 5 February |
Q4 | 6 January – 5 April | 5 May |
EOPS | After Q4 | Usually due by 31 January |
Final Declaration | All combined income | By 31 January (same as current SA deadline) |
Missing a deadline? HMRC’s proposed penalty system (similar to MTD VAT) could charge:
£200 fixed penalties
Points-based system leading to more fines
Daily interest on unpaid tax
The exact framework is set for rollout before 2028, as previewed in Spring Budget 2024.
Choosing MTD-Compatible Software
You’ll need software to record and submit data digitally—no exceptions. Some of the top providers already integrated include:
Software | Features | Cost (Monthly) |
QuickBooks Self-Employed | Mileage, receipts, income tracking | From £10 |
FreeAgent | Ideal for freelancers; integrates with MTD | Free with some NatWest accounts |
Xero | Strong landlord support; real-time dashboards | From £14 |
Sage | Known for small biz & rental accounting | From £12 |
123Sheets (Bridging tool) | Links spreadsheets to HMRC | ~£30/year |
(Source: HMRC’s list of approved software)
Got an Excel habit?
If you insist on spreadsheets, you'll need bridging software that converts them into a format HMRC can accept. But this workaround is risky—it’s less future-proof and often misses out on real-time alerts or automation.
What You’ll Need to Record (and Digitise)
HMRC requires the following to be recorded digitally and submitted quarterly:
Business income (sales, services)
Allowable expenses (e.g. utilities, subscriptions, travel)
Rental income (gross, per property)
Property-related expenses (e.g. repairs, insurance)
Any adjustments (e.g. use of home, mileage claims)
Here’s a simple comparison:
Record Type | Pre-MTD | MTD |
Paper notebook or Excel | Fine | Not allowed without bridging |
Annual summary in January | OK | Now required quarterly |
Final adjustments | In Self Assessment | Now submitted via EOPS |
Real-World Example: How It Plays Out
Let’s say you’re a self-employed graphic designer and rent out a room on Airbnb. Your numbers:
Freelance income: £18,000
Airbnb income: £8,500
Total: £26,500 → MTD applies
You must:
Use MTD-compatible software to log income & expenses.
Submit updates quarterly (April, July, October, January).
Make year-end adjustments (capital allowances, bad debts, use of home).
Submit your EOPS and Final Declaration by next 31 January.
Old way: Once-a-year mad dash to meet the SA deadline.New way: Spread out the admin, real-time awareness of tax owed.
What If You Also Have PAYE Income?
Let’s clear up a common confusion. If you’re:
Employed (via PAYE) AND
Self-employed or a landlord earning over £20,000 from those side incomes,
You’ll only report the MTD side digitally. PAYE is still handled via your employer’s RTI submissions and doesn’t fall under MTD for ITSA (at least for now).
Emergency Tax and Refunds in the MTD Era
Emergency tax codes are often triggered when HMRC doesn’t have full information—like a second job or inconsistent income. With MTD’s real-time submissions, these scenarios can be caught sooner.
Example: You start freelancing in September and trigger an emergency code on your main job because your PAYE tax office isn’t aware of your new gig.
Under MTD, your early quarterly submission could:
Flag the extra income quicker
Trigger a coding notice adjustment
Prevent a surprise tax bill—or get you a faster refund
Refunds: With data updated every 3 months, refunds may be processed sooner, especially if you've overpaid in early quarters or misreported expenses.
Payroll, CIS & VAT: Do They Interact?
If you:
Have employees → You already use RTI for PAYE.
Work in construction → CIS still applies.
Are VAT-registered → MTD for VAT already mandatory.
These systems don’t merge yet, but HMRC may combine dashboards in the future to allow unified visibility. If you juggle all three (PAYE, VAT, ITSA), expect more complexity—but also automation benefits if you use full-suite software like Xero or Sage.
Preparing for the Penalties: Start Now, Not in 2028
From what we saw in the Spring Budget 2024, the Treasury will enforce penalties before 2028 to encourage early compliance.
That means:
If you miss a quarterly update or file late in 2026–2027 while piloting, you could be fined.
HMRC’s likely to test its new points-based penalty system, where repeated misses get you a financial sting.
Want to avoid that? Join the pilot now, learn the ropes, and avoid being caught off guard.
Making Tax Digital (MTD) Adoption Trends: Past and Projected Shift in UK Taxpayers (2023–2028)
Real-World Impact of MTD: Case Studies, Cash Flow Planning, and Overtaxing Fixes
Time to Get Practical: MTD in the Wild
By now you know the theory. But what does Making Tax Digital actually look like when the rubber meets the road?
Let’s break it down with real-life examples and scenarios from the 2023–2024 tax year, where early adopters voluntarily tested MTD for Income Tax. These stories expose the good, the bad, and the unexpectedly painful. More importantly, they offer actionable insights for anyone planning to comply by 2028—or sooner.
Case Study #1: Emma the Freelance Copywriter
Profile: Self-employed, working from home full-time
Annual income: £31,000
Expenses: £5,000 (home office, software, travel)
Signed up for MTD pilot: May 2023
The Good:
Emma used FreeAgent, which auto-categorised her expenses and pre-filled quarterly reports. By submitting updates every three months, she avoided a big tax bill shock in January and smoothed out her payments.
The Gotcha:
She forgot to log a £2,000 client invoice before her Q3 update. When HMRC calculated her EOPS, it flagged underreported income, triggering a correction.
Fix: Her final declaration adjusted the error, and she avoided a penalty because she corrected it before the deadline. But this highlighted the importance of timely updates.
Lesson: MTD helps avoid surprise bills, but if you delay logging income, it can mess with cash flow projections—and raise flags with HMRC.
Case Study #2: Tariq the Part-Time Landlord
Profile: Teacher (PAYE), owns 2 rental properties
Rental income: £18,000/year (after expenses)
Self-employed income: £4,500 from tutoring
Total: £22,500 → Over threshold
Tariq didn’t realise his side hustle plus property income meant he qualified for MTD. He joined the pilot mid-2024, but struggled with merging property software with income tracking tools.
The Good:
His letting agent used software that linked to Xero, helping automate rental income logs.
The Headache:
He missed a quarterly update due to conflicting software. His Final Declaration was flagged, and while no penalty applied in the pilot, from 2026 onwards, this would have cost him at least £200 in late submission penalties under HMRC's draft framework.
Lesson: Landlords must integrate letting agent records into their MTD setup, or risk partial data and submission delays.
How MTD Affects Your Cash Flow—Seriously
Here’s where things get real. Under the old Self Assessment system, many people only planned for tax once a year. With MTD, quarterly updates = real-time tax visibility. That’s a win—but it changes how you manage your money.
Example: Cash Buffer Planning
Scenario | Old System | MTD System |
Bill due January | You saved up manually | HMRC estimates as you go |
Missed expense claim | You may miss it until next year | Can adjust within quarter |
Big income spike | Shows up at year-end | Seen instantly in Q report |
You’ll want to maintain a buffer of 20–30% of your income for tax, as real-time updates may affect your Payments on Account (POA).
Payments on Account: How MTD Makes It Easier—or Trickier
Under Self Assessment, if you owed over £1,000, HMRC would usually ask for 50% of your next year’s tax upfront, due in January and July. MTD doesn’t remove this—but it makes the estimates smarter.
With MTD:
If your quarterly updates show lower profits, your next POA could be reduced.
If your profits rise mid-year, your POA may go up, preventing underpayment shocks.
Example:
Freelancer Sam had a poor first half of the year, earning only £7,000. Under MTD, HMRC calculated a much lower first POA, giving him breathing room.
But when he landed a big contract in Q3, his final POA was adjusted upwards. It hurt—but at least it wasn’t a surprise.
Overtaxing and Emergency Tax: Spot It Sooner
A massive hidden benefit of MTD is the early detection of emergency tax errors—especially for:
Freelancers with PAYE jobs
People who recently changed income types
Landlords who use agents that report late
Scenario:
Ali has a full-time job and just started a delivery side gig. His employer didn’t update his tax code, and he was charged emergency tax for six months.
Pre-MTD: He wouldn’t realise until next January, maybe get a refund… maybe not.
With MTD: His Q2 update flagged PAYE overcollection, and he got a refund that same month. Boom.
Common Tax Planning Mistakes MTD Will Help Fix
Let’s not pretend digital tax will solve every problem. But here are some recurring errors that MTD’s structure will help surface:
1. Missing Allowable Expenses
Examples:
Claiming mobile phone costs but forgetting % of business use
Not logging mileage correctly
MTD Fix: Real-time tracking tools prompt you to categorise these monthly—reducing forgotten deductions.
2. Late Income Inclusion
Like Emma’s £2,000 invoice. MTD can flag suspiciously low income quarters, encouraging corrections before year-end.
3. Misclassified Property Income
Accidentally reporting income under “self-employed” instead of “property”? HMRC now sees your source-specific updates each quarter. Mismatches get flagged early.
Special Note: MTD for Joint Property Ownership
If you and your partner own a rental jointly, each of you needs to report your share under MTD, even if one manages the admin. Use a shared software login or import data separately. This setup tripped up dozens of pilot users in 2024.
What MTD Doesn’t Do (Yet)
It’s not a silver bullet. Here’s what MTD for Income Tax won’t fix—at least not yet:
Doesn’t eliminate Payments on Account
Doesn’t remove need for final declaration
Doesn’t integrate with your bank’s tax code (yet)
Doesn’t combine PAYE, VAT, and ITSA into one portal (though it may in future)
Best Practices from Early Adopters
Want to stay ahead of the curve? Here’s what 2023–2024 volunteers recommend:
Tip | Why It Works |
Start using MTD-compatible software now | Avoids last-minute panic before April 2028 |
Automate recurring expenses | Reduces submission time and errors |
Review each quarterly update manually | Catch missed invoices or costs |
Set aside tax monthly based on updates | Improves cash flow and prevents January shocks |
MTD Impact on UK Sole Traders and Landlords Earning £20,000+ by 2028 with Penalties from 2025 - Graphical Representation
MTD and Property Income: What Landlords, Airbnb Hosts, and Side-Hustlers Must Do Before 2028
Landlords, You’re on the Radar Now
Until recently, many small-scale landlords flew under the radar—minimal paperwork, manual ledgers, maybe an accountant once a year. That world ends with MTD for Income Tax. If your combined self-employment and property income exceeds £20,000, you must comply with MTD by April 2028.
Let’s be crystal clear:
It doesn’t matter if you earn £10,000 from rent and £11,000 from freelancing—you’re over the line.
Even if the properties are jointly owned, HMRC sees your share as your income.
(Source: HMRC MTD for Income Tax guidance)
What Counts as Property Income?
MTD captures all income from UK property. That includes:
Traditional long-term lets
Furnished holiday lets (FHLs)
Airbnb or short-term rentals
Renting a room in your house
Rental from garages, parking spaces, storage units
It doesn’t include:
Property held in a limited company (these are under Corporation Tax, not MTD ITSA)
Properties that earn less than £1,000/year (thanks to the Property Income Allowance)
So yes, if you rent your spare room for £600/month on Airbnb, you’re in.
How the 2024 Budget Changed the Game for FHLs
The Spring Budget 2024 announced the abolition of the Furnished Holiday Lettings regime from April 2025. That’s huge.
What’s going away?
FHLs could previously claim capital allowances and business rates instead of council tax.
They had special mortgage interest deduction rules.
Owners could make pension contributions based on FHL profits.
All that’s being scrapped to “level the playing field” between long-term and short-term landlords.
MTD implications:
From April 2025 onward:
FHLs will be taxed like other rental income.
If your Airbnb income + other self-employed income hits £20k+, MTD applies.
No more separate FHL category in your MTD software—it all becomes generic UK property income.
Case Study: Airbnb Host with a Side Hustle
Name: LilyMain income: £12,000 Airbnb rental profitOther income: £10,500 from selling handmade jewelleryCombined: £22,500
→ MTD applies from April 2028.
Lily starts tracking everything manually, but her Airbnb calendar doesn't sync with her ledger, so quarterly updates show inconsistent income.
Solution:
Uses Xero with Airbnb integration, logging bookings, cancellations, and expenses automatically.
Now files quarterly updates in 15 minutes and avoids £200 penalty risk.
Landlords and Side Hustlers: Hidden Compliance Traps
1. Joint Ownership Chaos
If you and your partner own a property 50/50:
Each must submit their 50% income and expenses via MTD
You can’t just submit one joint return
Even if your partner is below the £20k threshold, and you’re not, you’re both required to comply if you hit the threshold alone
Solution:
Use software with shared access or export statements to both accounts.
2. Agent vs. Self-Managed Property
Letting agents often:
Deduct fees before passing rent
Pay bills on your behalf (repairs, insurance)
You must report gross income, not what the agent deposits.
Example:
Tenant pays £1,200
Agent deducts £120 fee and £80 for boiler repair
You must report £1,200 income and log £200 expenses in your MTD system
Tax Relief Opportunities (and Pitfalls) in Property
Still allowed:
Mortgage interest deduction (for basic rate taxpayers only)
Council tax, insurance, repairs
Wear and tear (if not capital improvements)
Often missed:
Use of home as an office (proportion of bills if you manage lets from home)
Travel to/from properties (mileage claim—45p/mile up to 10,000 miles)
Accountancy fees
Legal costs (e.g., eviction notices, lease renewal)
MTD makes it easier to claim these if your software tracks them in real time. The key is to digitise those receipts and logs, or you’ll miss deductions.
Accidental Landlords: Watch Out
Many become landlords without planning to:
Inherit a flat
Move out and rent your old home
Sublet to cover mortgage
These “accidental landlords” are often underprepared and miss:
Annual property income thresholds
Recordkeeping obligations
Tax due dates
MTD exposes this fast. Even voluntary quarterly filings may reveal underpaid tax from prior years.
Solution: If you rent a property, even casually, use this guide to determine if MTD will apply, and start tracking income properly.
Software Tips for Landlords
Choose software that:
Supports multiple properties
Logs income per property
Tracks letting agent fees separately
Links to your bank (for receipts, deposits)
Allows shared access (for joint owners)
Top picks include:
Xero with Airbnb plugin
Landlord Vision
QuickBooks + bridging for rent
TaxCalc (if working with accountant)
What About Overseas Property?
Yes—MTD covers UK property income only.
If you:
Own a flat in Spain or Dubai
Rent it out to tourists
Earn over £1,000/year
You’ll still declare it in your Final Declaration, but it won’t be part of quarterly MTD updates—for now.
That said, expect this to change in future digital reforms.
Timeline Recap: What Landlords Must Do Next
Date | Action |
Now (2025) | Start using MTD software voluntarily to prepare |
April 2025 | FHL tax benefits abolished |
Mid-2025 | Penalties system for MTD submissions to be confirmed |
2026–2027 | Beta testing, new digital adjustments, expanded software support |
April 2028 | Mandatory MTD for landlords over £20k income begins |
Proactive Tax Planning for Property Owners
Use MTD as a planning tool, not just a compliance headache.
Log repairs as they happen
Categorise improvements vs. expenses (to avoid CGT issues)
Sync letting agent and bank data
Review your quarterly profits to tweak pricing or mortgage strategy
This data helps you avoid overtaxing and forecast your annual liability months in advance, rather than sweating it in January.
Preparing for a Fully Digital Future: Long-Term MTD Impact on UK Sole Traders, Landlords, and Payroll
A Glimpse Into HMRC’s Digital Vision
By making Making Tax Digital (MTD) for Income Tax mandatory by April 2028 for anyone earning over £20,000 from sole trader and/or rental income, HMRC is laying the foundation for something much bigger: a fully digitised tax ecosystem.
From the Spring Budget 2024 and earlier digital reform consultations, it’s clear that:
Paper tax returns are dying out
Real-time tax data will eventually replace year-end balancing acts
The government wants to unify PAYE, VAT, and ITSA data on a single digital tax account
So if you think MTD is just another compliance hoop—think again. It’s your entry point to the future of UK taxation.
What to Expect Beyond 2028
Experts and policymakers are predicting the following evolution:
1. MTD for All Taxpayers (Eventually)
While the £20k threshold applies for now, HMRC may lower it once the system stabilises. That means:
Freelancers earning £10k–£20k might be included later
Digital reporting for PAYE-only taxpayers could follow
2. Real-Time PAYE Integration
If you’re both employed and self-employed:
HMRC may soon combine RTI (Real Time Information) from your employer with your MTD ITSA data
You’ll get a rolling tax position—like a digital tax dashboard
3. Automated Refunds & Overpayment Corrections
Once MTD is embedded:
Overpaid tax due to emergency codes or bad estimates could be refunded automatically
Quarterly updates will give HMRC enough data to fix things without waiting for Self Assessment
4. AI-Driven Tax Adjustments
By 2030, many predict that MTD software will:
Suggest allowable expenses
Flag potential reliefs (e.g. marriage allowance, SEIS)
Integrate with banking, pensions, and investment platforms for smarter tax planning
The Payroll and Employer Side: What’s Changing?
Even if you’re a sole trader now, many grow into employer roles. When that happens, your responsibilities balloon. Here’s how MTD ties in with payroll:
PAYE and RTI: Already Digital
HMRC already requires Real Time Information (RTI) for employers:
Every time you run payroll, you report income, deductions, and NICs in real time
This syncs with employee tax codes and benefits
Where It Gets Tricky:
If you’re paying freelancers via CIS (construction industry), you also need to submit digital CIS returns
Employers using manual spreadsheets for payroll risk non-compliance if not connected to HMRC-compatible payroll software
MTD’s future will likely link RTI and CIS submissions into your digital tax dashboard—meaning even tighter integration between PAYE and ITSA.
Top Payroll Software That’s MTD-Ready:
BrightPay
Sage Payroll
QuickBooks Payroll
Xero Payroll
These not only handle payslips and RTI but sync with your MTD tax account.
Staying Compliant When Scaling Up
Let’s say you’re a landlord who becomes a property developer, or a self-employed consultant who forms a limited company. Here’s what to watch:
Transition | What Changes |
Sole trader → Ltd Co | Switch from ITSA to Corporation Tax filings |
>1 employee | Must use RTI-compatible payroll software |
Cross £85,000 turnover | Must register for VAT and comply with MTD for VAT (already mandatory) |
Property investor → developer | Capital vs. revenue treatment becomes more complex (e.g. CGT vs. trading income) |
Key tip: Choose MTD software that can scale with your growth, ideally supporting ITSA, VAT, PAYE, and Corp Tax in one platform.
What Tax Experts Are Saying About MTD
From accountants and software developers to financial commentators, the general sentiment is:
“MTD is painful at first—but powerful in the long run.”
Why?
It forces better recordkeeping discipline
Encourages real-time tax awareness
Gives sole traders and landlords similar visibility that larger companies already enjoy
Chartered Accountant Insight:
“Clients who adopt MTD early are catching errors months ahead and planning better. Yes, it’s more admin—but the clarity it offers outweighs the pain.”
(Source: Institute of Chartered Accountants in England and Wales, 2024 commentary)
A Digital Checklist to Future-Proof Your Finances
Before the 2028 hammer drops, use this MTD readiness checklist to bulletproof your books:
✅ Set up MTD-compliant software now
Don’t wait until 2028. Start submitting voluntarily or use dummy quarters to practice.
✅ Sync your bank feeds
Automated feeds from your bank help reduce errors and avoid missed income.
✅ Keep digital copies of all receipts
Scan and store in-app or on secure cloud platforms. HMRC can request proof even for old years.
✅ Log expenses monthly
Don’t backdate or guess—real-time logging avoids missed claims and HMRC suspicion.
✅ Get help if needed
If your affairs are complex, work with an MTD-ready accountant. Many now offer quarterly review packages tailored to ITSA.
✅ Track thresholds and status
Stay below or above thresholds intentionally (e.g., plan property expansion, business growth).
✅ Prepare for penalty regime
Once finalised, learn how HMRC’s points-based penalty system works—and avoid it at all costs.
Let’s Recap the Big MTD Wins and Warnings
Benefits:
Real-time cash flow visibility
Easier claim tracking and recordkeeping
Faster refunds and issue detection
Scalable tax management for growing businesses
Challenges:
Software learning curve
More frequent deadlines (quarterly)
Risk of penalties for delays or missing data
Joint ownership or agent-managed income = extra complexity
MTD Isn’t Optional—But It Can Be an Opportunity
If you’re a UK sole trader or landlord, Making Tax Digital will soon become non-negotiable. But that doesn’t mean it has to be a burden.
Approach it like:
A digital assistant that helps you catch mistakes
A tool to forecast and plan your tax bill
A system to scale with your business or portfolio
Waiting until 2028 to adapt? That’s asking for stress, fines, and a rushed scramble.
Start early, go digital, stay ahead. Your future tax self will thank you.
MTD UK Taxpayer Shift: Interactive - Graphical Representation of 5-Year Tracker for Sole Traders and Landlords, 2023-2027
Summary of All the Most Important Points Mentioned In the Above Article
From April 2028, Making Tax Digital (MTD) will be mandatory for sole traders and landlords earning over £20,000 from self-employment and/or property income.
Quarterly digital updates will replace the traditional once-a-year Self Assessment tax return, submitted via MTD-compatible software.
Penalties for non-compliance are expected to begin before 2028, likely mirroring MTD for VAT’s points-based penalty system.
The £20,000 threshold is based on total income from all self-employed and rental sources, not per business or property.
Real-time submissions help spot emergency tax issues, overpayments, and refund opportunities far earlier than under the old system.
The Furnished Holiday Lettings (FHL) tax regime is being abolished in April 2025, aligning short-term lets with standard property rules.
Joint property owners must submit MTD updates individually, even if the property is managed jointly or by an agent.
MTD software enables better cash flow planning by giving taxpayers real-time estimates of tax owed throughout the year.
HMRC plans to expand digital integration across PAYE, VAT, CIS, and ITSA to create a unified tax dashboard in the near future.
Early adoption of MTD practices helps avoid penalties, improves accuracy, and positions taxpayers to benefit from future automation and AI-driven tax planning.
FAQs
Q1. Can you claim the property income allowance and still fall under MTD if your total income exceeds £20,000?
A. Yes, even if you claim the £1,000 property allowance, if your combined gross self-employment and property income exceeds £20,000, you must comply with MTD.
Q2. Will Making Tax Digital apply if you live abroad but rent out property in the UK over the £20,000 threshold?
A. Yes, MTD for Income Tax applies to UK property income regardless of your residency, as long as the income is over £20,000.
Q3. Can you be exempt from Making Tax Digital if you have a disability or lack digital literacy?
A. Yes, HMRC allows digital exclusion exemptions for reasons such as age, disability, or location where internet access is not practical.
Q4. Will furnished holiday lets be treated differently under MTD after the regime is abolished in April 2025?
A. No, from April 2025, furnished holiday lets will be treated the same as standard residential lets under MTD.
Q5. Can you appoint an accountant or agent to manage your MTD submissions for you?
A. Yes, you can authorise an agent through your HMRC online account to handle all MTD submissions on your behalf.
Q6. Is Making Tax Digital available in Welsh or other languages for non-English speakers?
A. Yes, MTD resources and guidance are available in Welsh, and HMRC offers translation services for other languages upon request.
Q7. Can you submit MTD updates using just a smartphone or tablet?
A. Yes, as long as the device runs HMRC-approved MTD-compatible software, submissions can be made via mobile or tablet.
Q8. What happens if you have fluctuating income—some years over £20,000 and some under—do you still need to comply?
A. Once your income goes over the £20,000 threshold, you are mandated to comply with MTD going forward, unless HMRC provides a formal exemption.
Q9. Can Making Tax Digital be used for non-property investment income like dividends or stocks?
A. No, MTD for Income Tax currently applies only to self-employment and property income, not investment income like dividends.
Q10. Is it mandatory to link your business bank account to your MTD software?
A. No, it's not mandatory, but it is strongly recommended as it reduces manual errors and makes recordkeeping more efficient.
Q11. Can you switch MTD software mid-year if you're not happy with your current provider?
A. Yes, you can switch providers anytime during the tax year, as long as both systems are MTD-compatible and data is correctly transferred.
Q12. Will MTD eventually replace Corporation Tax filing for limited companies?
A. Not yet, but HMRC has long-term plans to extend MTD to Corporation Tax, with a pilot expected no earlier than 2026.
Q13. Will penalties apply immediately after a missed quarterly update under the new regime?
A. No, HMRC uses a points-based system where penalties apply after repeated failures, but exact rules for MTD ITSA will be finalised soon.
Q14. Can landlords with income from multiple properties consolidate their MTD reports into one update?
A. Yes, as long as all properties are under one taxpayer’s name, the combined data can be submitted in a single quarterly update.
Q15. Does MTD for landlords apply if you rent only to family members or below market value?
A. Yes, MTD applies based on gross income—not on who the tenant is or how much they pay.
Q16. Will there be HMRC support or webinars available for landlords and sole traders before 2028?
A. Yes, HMRC offers ongoing webinars, videos, and one-to-one support for those preparing for MTD before the full rollout.
Q17. Can you defer MTD compliance if your income drops below £20,000 after initially qualifying?
A. No, once you meet the threshold and enter MTD, you remain in it unless HMRC grants a deregistration based on reduced ongoing income.
Q18. Does MTD allow for multiple business types under one taxpayer (e.g., freelance and rental)?
A. Yes, the system is built to handle multiple income sources, which must be reported under separate categories in MTD software.
Q19. Are there specific MTD compliance rules for married couples with joint rental income?
A. Yes, each spouse must report their share individually using their own MTD-compliant account and credentials.
Q20. Will MTD submissions trigger more frequent HMRC audits or investigations?
A. Not necessarily, but MTD gives HMRC more data visibility, which could increase targeted queries if inconsistencies are found.
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