Expansion of MTD for Income Tax: What the 2025 Spring Statement Revealed

The UK 2025 Spring Statement, published on 26 March, contained several unexpected events for Making Tax Digital for Income Tax (MTD IT). The biggest news was that the income threshold for MTD for Income Tax will be lowered to £20,000 from April 2028. There were fresh exemptions and deferrals and confirmation that HMRC will not be offering an online service for year-end tax returns under MTD.

Lower Income Threshold Confirmed for April 2028

The government had indicated plans in the Autumn Budget to extend MTD for Income Tax to those with incomes over £20,000 by the end of the current Parliament. The Spring Statement has now put this into the concrete timeframe of April 2028, confirming the transition.

Since the original taxpayers entering MTD IT are due in 2026/27 tax year, self-assessment under the regime is only due 31 January 2028. That leaves only a modest two-month grace period before an estimated 900,000 additional low-income taxpayers fall into the regime.

It also indicated that it will continue to look into ways of rolling out digitalisation benefits to the close-to-4-million sole traders and landlords with an income of less than £20,000, hinting at a possible decrease in the threshold in the future.

New Exemptions and Temporary Deferrals Announced

As the implementation of MTD IT looms near, concerns were mounting about practical issues for some groups of taxpayers. In a bid to ease these fears, the government has introduced new exemptions and temporary deferrals.

Taxpayers Outside MTD for Income Tax

The Spring Statement assures that the following taxpayers will be outside of MTD IT:

• Taxpayers with a power of attorney
• Non-resident foreign entertainers and sports personalities (provided they have no other income within MTD scope)
• Taxpayers where HMRC “cannot provide a digital service

While the initial two exemptions appear straightforward, the last category is problematic. There is uncertainty regarding whom HMRC considers cannot be issued a digital service, particularly since the department will no longer provide an online filing service for MTD self-assessment returns. Applicants for an exemption will be required to notify HMRC and provide reasons.

Temporary Deferrals for Certain Groups

In addition to exemptions, deferrals for some taxpayers have been made by the government. The below shall not be covered by MTD for Income Tax during this Parliament:

• Ministers of religion
• Lloyd’s underwriters
• Married Couple’s Allowance and Blind Person’s Allowance recipients
• Those required to complete an SA109 form (residence/remittance basis pages), who will now be phased into MTD in April 2027 instead of 2026

While these postponements make sense, they might leave some uncertainty, particularly for those non-residents earning more than £50,000, who would otherwise be brought into MTD from April 2026. The roles of those whose residence status alters up to the date of effect are also uncertain.

Transition to a Full Computer-Based Filing System

It was always understood that third-party software would be needed for maintaining electronic records and making quarterly returns under MTD. But taxpayers had hoped year-end return would still be submitted through an online facility provided by HMRC.

The Spring Statement has since confirmed that this will not occur. Taxpayers in MTD for Income Tax will be required to use software that is capable of facilitating the whole self-assessment process, including year-end reporting—what HMRC describes as a “full software journey.” The current HMRC online service will only remain available to those outside of MTD IT.

This is a tall order. While many MTD-compatible software packages can accommodate quarterly filings, not all of them are capable of submitting year-end returns. Taxpayers will thus be forced to:

• Switch to software that can accommodate the full filing process, or
• Have two separate software solutions, one for quarterly submissions and another for year-end submission

The lack of an HMRC alternative means taxpayers and agents have to carefully review whether their chosen software fully fulfils their reporting needs.

Software Limitations and Niche Income Situations

One of the most pressing issues to arise from this transition is whether appropriate software will exist to accommodate taxpayers whose income streams are more complex. Certain niche situations may not be sufficiently supported by the available MTD-capable software, and so may contribute to the thinking behind some of the exemptions outlined in the Spring Statement.

As MTD for Income Tax becomes fully operational, taxpayers and their agents should be prepared for the changes. The necessity for a full computer-based filing process will necessitate prudent selection of electronic tools so as to avoid compliance issues upon the introduction of the new regime.

Conclusion

The 2025 Spring Statement has finally given clarity on the roll-out of MTD for Income Tax, stating April 2028 as the official start date for the reduced £20,000 income level. While new deferrals and exemptions are some relief, the removal of HMRC’s online filing option complicates things. Taxpayers must positively check their software options in order to be fully compliant once changes are made.

As MTD IT evolves in the coming years, it will be important that individuals and businesses alike stay aware and planning ahead in the digital tax world.