Making Tax Digital changes to affect sole traders & landlords

On 26th March 2025, I blogged the Chancellor’s Spring Statement as she made her announcements in the House of Commons. Somehow, despite watching the Statement live, following the real-time updates of two news outlets, and keeping an eye on HM Treasury’s X feed, I missed the announcement of certain Making Tax Digital changes!

Given that these will affect a proportion of our sole trader and landlord clients, it’s worth explaining what these changes are.

What is Making Tax Digital?

We’ve written extensively about Making Tax Digital (MTD). You can find lots of information about it on this dedicated MTD page. In brief, people and businesses need (or will need) to submit tax returns electronically every quarter. In most cases they’ll use specialist. (and approved) cloud accounting software to do this. For example, businesses or sole traders might use FreeAgent, while landlords might opt for Hammock. People or businesses that pay VAT currently have to comply with MTD. In the near future, so will people who pay Income Tax and, a bit further down the line, businesses that pay Corporation Tax will have to comply as well.

What are the Making Tax Digital changes?

Back in October 2024, the Chancellor confirmed that sole traders and landlords with qualifying annual income over £50,000 will need to join Making Tax Digital for Income Tax by April 2026. She also confirmed that those with qualifying income of £30,000 would have to join by April 2027.

After the Spring Statement, HM Treasury published a policy statement that announced further Making Tax Digital changes. Foremost among these was an announcement that sole traders and landlords with qualifying income as little as £20,000 will have to join MTD for Income Tax by April 2008. It is estimated that this will force 900,000 extra people to comply.

The Spring Statement policy statement also contains another Making Tax Digital change. From April 2025, late payment penalties will go up for VAT taxpayers. They’ll also go up for any Self-Assessment taxpayer who joins MTD. The new rate will be 3% of the outstanding tax (if overdue by 15 days). This goes up another 3% after 30 days. It then racks up to 10% per annum where the tax is overdue by 31 days or more.

Why these Making Tax Digital changes?

In its policy paper, HM Treasury says that ‘MTD places businesses on a digital footing, prepares them for the future, gives them the tools they need to succeed in an increasingly competitive landscape, and ensures they can benefit from a modern, digital service when managing their tax affairs’.

All that may be true, but government has another motivation: closing the tax gap. By 2029/20, increased MTD late payments are forecast to bring in an extra £125 million. Similarly, expanding MTD for Income Tax to those on incomes of £20,000 and ‘further detailed changes’ will raise an estimated £120 million that year.

Are there any exemptions?

There are a few exemptions from the Making Tax Digital changes. The following will not have to use MTD for Income Tax as long as they satisfy HMRC that they are exempt.

• Customers with a Power of Attorney
• Non-UK resident entertainers / sportspeople with no other income sources of qualifying income for MTD
• Customers for whom HMRC can’t provide a digital service.

In addition, there are some other groups who will remain exempt for at least the course of this parliament. These are:

• Ministers of religion
• Lloyd’s underwriters
• Recipients of the Married Couple’s Allowance
• Recipients of the Blind Persons’ Allowance.

Full details for exemptions and deferrals will be set out in future guidance.

What happens next?

If your qualifying self-employed or landlord income is likely to be over £20,000 year by 2028, then you’ll need to comply with Making Tax Digital for Income Tax. If you need help with MTD, or with finding compatible cloud accounting software, talk to your THP account manager today.