Published on 30 October 2024

MTD must work properly before the threshold is lowered, warns LITRG

Press release

The Low Incomes Tax Reform Group (LITRG) has expressed concern in response to today’s Budget announcement that the income threshold for having to join Making Tax Digital for Income Tax1 is to be lowered from £30,000 to £20,000. We do not yet know the timeline for this change. This is to be announced at a future fiscal event, but today’s documents confirm that it will be by the end of this Parliament (2029).

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Sharron West, LITRG Technical Officer, said:        

“When MTD for Income Tax was first announced, the turnover threshold was set at £10,000. We were always clear that this was far too low.2 The threshold was later adjusted upwards to £30,000.3

“Splitting the difference at a turnover of £20,000 will still bring many businesses and landlords who are not liable for income tax4 within the scope of MTD, meaning they will have to get to grips with digital recordkeeping and using third-party software.

“The previous government promised that free third-party software would be available, but this remains scarce, and with limitations on use.

“In view of today’s announcement, we once again urge HMRC to develop their own suitable basic free product to allow those at the lower end of the income scale to meet their MTD obligations, in the same way they do now for self assessment.5” 

Sharron West added:

“HMRC must not run before they can walk with MTD. They need to make sure that MTD works smoothly and that support is easily available before it is rolled out to those on the lowest incomes.” 

Notes for editors

  1. Making Tax Digital (MTD) for Income Tax mandates those within its scope to keep digital records and to file regular – quarterly – reports to HMRC unless they have been granted  exemption.
  2. The original plan was for Making Tax Digital (MTD) for Income Tax to be introduced for all those with gross self-employment and property income of £10,000 or more. We said this was too low, because it was below the personal allowance for income tax (£12,570) and that it brought in the very smallest businesses, many of whom would find it an almost impossible task. Also, there was insufficient evidence of it having an impact on reducing the tax gap.
  3. In December 2022, it was announced that there would be a phased introduction of MTD for Income Tax for individuals with gross self-employment and property income (‘turnover’) as follows:
      - From 6 April 2026, turnover of £50,000
      - From 6 April 2027, turnover of £30,000
    For those with gross self-employment and property income below £30,000, the introduction of Making Tax Digital for Income Tax was being kept under review, pending further work on how it could better meet the needs of those on lower incomes.
  4. As the MTD threshold is based on turnover, after deducting expenses, taxable profits could be below the income tax personal allowance of £12,570.
  5. Under self assessment there is no mandation to file tax returns online. Taxpayers can use paper tax returns if they choose to do so – there is no exemption required. HMRC provide free software for those who choose to file their self assessment tax return online, subject to some restrictions. 
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