Reduction of the mandation threshold from £30,000 to £20,000 from April 2028
Published 24 March 2026
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Who is likely to be affected
Individuals who run unincorporated businesses or let out property (sole traders and landlords), with total qualifying income between £20,000 and £30,000, who will be mandated into Making Tax Digital (MTD) for Income Tax.
General description of the measure
This measure reduces the MTD for Income Tax mandation threshold from £30,000 to £20,000, extending digital record‑keeping and quarterly submission obligations to additional self‑employed individuals and landlords.
Those within scope will keep digital records and use MTD‑compatible software to send quarterly updates of business and, or property income and expenditure and their end‑of‑year tax return. This will support improved accuracy, reduce errors, and encourage the wider adoption of digital tools across small businesses and landlords.
Policy objective
Lowering the MTD threshold supports the government’s aims to:
- improve the accuracy of tax reporting
- reduce avoidable errors
- provide a simpler, more modern digital tax system
- support long term tax administration reform‑term tax administration reform
The measure extends the benefits of digital record keeping to more small businesses and landlords while supporting longer term simplification.
Background to the measure
Originally announced at Budget 2015, and following formal consultation in 2016, HMRC implemented the first phase of MTD from April 2019 for VAT-registered businesses.
Building on the successful introduction of MTD for VAT, the government confirmed at Autumn Budget 2024 that MTD for Income Tax will be introduced for sole traders and landlords with income over £50,000 from April 2026 and those with income over £30,000 will be mandated from April 2027.
This further phase, extending MTD for Income Tax to sole traders and landlords with income over £20,000 from April 2028 was announced at Spring Statement 2025.
MTD delivers significant monetised benefits as set out in the Exchequer Impacts section. Benefits will continue to accrue beyond the 5-year scorecard period. MTD will also deliver significant non-monetizable benefits. MTD is upgrading and modernising critical national IT infrastructure for the VAT and ITSA regimes. The evaluation of MTD for VAT provides evidence that MTD offers wider productivity and time savings benefits for some businesses. MTD for Income Tax will support the wider digitisation and productivity of UK businesses and provide a technological foundation for future innovation.
Further information is set out in the most recent Accounting Officer Assessment.
This tax information and impact note (TIIN) supplements the MTD for Income Tax TIIN first published in February 2024 and republished in September 2025.
Detailed proposal
Operative date
The measure will take effect from 6 April 2028.
Current law
Current MTD requirements for Income Tax are legislated primarily in:
- Finance Act 2022
- associated secondary legislation governing digital record keeping and periodic reporting
Proposed revisions
The Income Tax (Digital Obligations) Regulations 2026 require taxpayers to use MTD-compatible software to maintain digital records of income and expenses and to submit quarterly updates and final returns electronically.
The regulations amend the definition of MTD‑mandated persons by lowering the income threshold from £30,000 to £20,000, bringing approximately 970,000 additional individuals into scope. They also specify exemptions for certain groups and establish the income threshold for joining MTD.
The legislation specifies the commencement date and any consequential transitional provisions.
Summary of impacts
Exchequer impact (£ million)
| 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | 2030 to 2031 |
|---|---|---|---|---|---|
| — | +50 | +415 | +720 | +900 | +975 |
These figures show the exchequer impact of the entire Future of Making Tax Digital for Income Tax package (which contains multiple measures), set out in Table 4.2 of Budget 2025 and have been certified by the Office for Budget Responsibility.
| 2025 to 2026 | 2026 to 2027 | 2027 to 2028 | 2028 to 2029 | 2029 to 2030 | 2030 to 2031 |
|---|---|---|---|---|---|
| — | — | — | +35 | +130 | +155 |
These figures show the exchequer impact of the measure outlined in this Tax Information and Impact Note.
The figures form part of the overall exchequer impact set out in the table above. More details can be found in the policy costings document published alongside Spring Statement 2025.
Macroeconomic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure extends MTD for Income Tax to individuals who run unincorporated businesses or let out property (sole traders and landlords) with total qualifying income between £20,000 and £30,000.
It will impact them only by virtue of their business activities, and is otherwise expected to have no impact on individuals, households or families. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
An individual may be affected by this measure regardless of their protected characteristics. If a protected group is overrepresented in the self-employed and landlord populations with income between £20,000 and £30,000, then it will be disproportionately impacted. Estimated breakdowns for the self-employed and landlord populations are outlined below.
Self-employed people with trading income between £20,000 and £30,000
Approximately 68% of this customer group are estimated to be male, compared to around 50% of UK adults in general. This population is of typical working age, with an estimated 88% aged between 25 and 64 and a lower proportion aged 16-24 and over 65 compared to UK adults in general. People from an Any other White (9.2%), Asian/Asian British — Pakistani (3.9%), and Any other ethnic background (2.8%) are estimated to be overrepresented in this population compared to their representation in the UK adult population (5.0%, 1.6%, and 1.4%, respectively). In addition, individuals that identified as Muslim (7.2%) were estimated to be overrepresented compared to their prevalence in the UK adult population (3.7%).
Where data were available no other protected groups were estimated to be overrepresented in this population.
Landlords with property income between £20,000 and £30,000
Males and females are estimated to be evenly represented in this customer group. Approximately 97% of individuals in this population are aged 35 or older, with those aged 55-64 (31%) particularly overrepresented compared to their prevalence in the UK adult population (16%). People from an Asian/Asian British ethnic background (17%) are estimated to be more than twice as likely to be in this population compared to their prevalence in the UK adult population (6%). In addition, individuals that identified as Hindu (7%) were estimated to be overrepresented compared to their prevalence in the UK adult population (2%).
Where data were available no other protected groups were estimated to be overrepresented in this population.
HMRC will continue to monitor equalities impacts through the design and delivery of MTD. HMRC’s customer support model will provide support via different channels including customers who require extra support and in providing accessible online content, for example recorded Webinars and YouTube videos. Anyone who feels they are unable to comply with the MTD obligations due to digital exclusion may apply for an exemption, for example if:
- it’s not practical for the customer to use software to keep digital records or submit them — perhaps due to age, disability, location or another reason
- the customer is a practising member of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records
HMRC will directly contact customers likely to fall within mandation scope, with details of the new requirements and signposting to support and guidance. It will also continue to work across multiple channels supporting as many taxpayers as possible to move onto digital services.
Administrative impact on business including civil society organisations
Reducing the MTD for Income Tax threshold to £20,000 will extend MTD obligations to approximately 970,000 sole traders and landlords.
Under the changes, these customers will need to keep records of their income and expenditure digitally and send a quarterly summary of business and, or property income and expenses, and their end of year return, using MTD compatible software (or applications).
In doing so they may incur signification transitional and continuing costs. Those not already using digital tools for their business may need to purchase or acquire a free version of software and become accustomed to using it.
Those using an agent for all or part of their tax affairs may see increased agent charges, especially where the agent completes the MTD quarterly update on the customer’s behalf. Because of their simplicity, and with software doing much of the work, we expect many customers will make the quarterly updates themselves, without agent assistance.
Sole traders and landlords with total qualifying income between £20,000 and £30,000 generally have simpler income profiles than those earning above £30,000, although many will be using this income to supplement other income sources, such as pension or employment income.
While most are sole traders, proportionally there are fewer than there are within the higher (above £30,000) thresholds. There is also a notably larger share of landlord only customers, and fewer individuals with both trading and property income, indicating less complex or diversified sources of qualifying income relative to those with income above £30,000.
Compared with higher earners, this group shows lower reliance on agents and lower uptake of software for filing returns. Although many do use professional support or digital tools, their overall engagement is less extensive than those with qualifying income above £30,000, suggesting they may be more sensitive to changes that require increased digital capability or professional input. As a result, this cohort may require more targeted support to adapt to reforms that introduce new administrative or technological requirements.
Costs
Standard Cost Model (SCM) methodology was used to estimate administrative burden impacts. This methodology allows HMRC and HM Treasury (HMT) to apply a standard set of principles for estimating administrative burdens across all impact assessments.
The assessment only considers the costs and savings strictly related to meeting MTD tax obligations. It does not include the wider benefits that HMRC expects businesses may see. It does not reflect the broader picture of taxpayer experience and cannot measure all consequential and longer-term benefits. The SCM only captures the costs to business of retaining or disclosing information to HMRC or to third parties and therefore cannot be used to estimate wider benefits of MTD to businesses. The costs illustrated are in addition to those costs that are already incurred by businesses and landlords in meeting their tax obligations.
Costs invariably will differ from business to business and are influenced by factors including size and complexity of the business, degree of digital capability and cost and functionality of the software solution employed.
HMRC is not providing its own MTD-compatible software. Commercial software providers are able to provide a broad range of products to meet the differing needs of businesses and landlords, in a way that HMRC is not.
Free MTD software is available that may be suitable for the simplest businesses, but others may find value in using products that integrate with existing business software or that offer a range of additional business tools.
Those using spreadsheets can continue to do so but will need to use MTD-compatible bridging software that extracts the relevant data from the spreadsheets and submits it in a way that is compliant with MTD rules.
HMRC will continue to work with developers to make sure that there is a choice of free and low-cost products available that can be used with MTD for Income Tax.
Overall, HMRC estimates a transitional cost of £380 million and a net increase in the continuing costs of tax compliance of £101 million for those businesses with income between £20,000 and £30,000.
Transitional one-off costs could include some or all of the following:
- time spent in familiarisation with the new MTD obligations (digital record keeping and quarterly submission of information)
- in-house training
- the purchase of new hardware or upgrading of existing hardware (expected to affect a small minority)
- additional costs for accountancy or agents’ costs
Transitional costs can be offset against the business’ profits for tax purposes.
Continuing costs could include:
- cost of software subscription for those moving to MTD compatible software, from either paper or spreadsheet systems
- additional time for making quarterly updates
- any cost of bridging software to provide MTD compatibility for those who prefer to continue using spreadsheets
- marginal increases in some existing software costs to provide MTD compatibility
Benefits
Updating records and making full use of software features such as helpful prompts, where available, will reduce the chance of errors. This means businesses will spend less time on record-keeping and tax administration, and more time on growing the business.
Moving to a more regular schedule of simple updates will give taxpayers a better view of the health of their business and likely tax liability.
Being able to see an in-year estimate of how much tax is owed and a better understanding of cash flow enables more informed financial decisions and reduces the risk of under or overpaying tax.
Submission of closer-to-real-time data by businesses will help many to plan their affairs; and integrating tax software with wider business activity can support productivity.
Businesses already using software with MTD for VAT have reported benefits including time savings, increased tax confidence, greater accuracy, and improved business operations in comparison to manual processes.
Customers continuing savings are based on estimated reductions in time spent on, or removal of, existing obligations due to expected benefits of MTD, including moving to digital record keeping and using compatible software.
These measures are expected to improve businesses’ experience of dealing with HMRC as managing their tax affairs will be simpler. Once businesses are used to operating the new MTD processes, we anticipate that they will find that MTD makes it easier for them to get things right and reduce errors.
It is not expected to impact civil society organisations.
| Total customer costs (£m) | Affected Population | |
|---|---|---|
| Total transitional costs | 380 | — |
| Total continuing costs (p.a.) | 104 | 970,000 |
| Total continuing savings (p.a.) | 3 | — |
| Net continuing costs (p.a.) | 101 | — |
Operational impact (£ million) (HMRC or other)
There will be resource costs for HMRC in applying, and policing this measure, and in updating guidance.
HMRC does not expect additional build costs from this measure as core MTD for Income Tax infrastructure will already be in place.
A staged introduction reduces operational risk.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
MTD has an established evaluation plan involving social research and data analysis. The plan will be updated to reflect this extension, with monitoring covering uptake, behavioural change, digital readiness, and error reduction.
Independent social research will be undertaken both before and after MTD for Income Tax is introduced to gather evidence of customer impacts and behaviour change. Self Assessment data will be used to monitor take-up and estimate additional tax revenue due to MTD.
Further advice
If you have any questions about this change, please contact: makingtaxdigitalconsultions@hmrc.gov.uk
Declaration
Daniel Tomlinson MP, Exchequer Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.