HMRC warns landlords and sole traders ‘may incur significant transitional and continuing costs’ when Making Tax Digital threshold is lowered to £20,000

Sole traders and landlords with income of £20,000 will be mandated to register for Making Tax Digital (MTD) for Income Tax from April 2028.

Under the changes, landlords and sole traders earning £20,000 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.

‘In doing so they may incur significant transitional and continuing costs,’ a policy paper from HMRC stated.

‘Overall, HMRC estimates a transitional cost of £380m, and a net increase in the continuing costs of tax compliance of £101m for those businesses with income between £20,000 and £30,000,’ the paper stated.

When the income threshold is lowered from 2028, the change will bring in approximately 970,000 additional individuals into scope.

These ‘transitional costs,’ could include: ‘Time spent in familiarisation with the new MTD obligations, in-house training, the purchase of new hardware or upgrading of existing hardware, and additional costs for accountancy or agent 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,’ the paper continued.

On the new cohort, HMRC stated: ‘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.’

On one hand HMRC said: ‘Compared with higher earners, this group shows lower reliance on agents and lower uptake of software for filing returns.’

Although the paper also stated: ‘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.’

HMRC warned ‘this cohort may require more targeted support to adapt to reforms that introduce new administrative or technological requirements.’

On the ‘impact on individuals, households, and families’, HMRC said: ‘It will impact them only by virtue of their business activities, and is otherwise expected to have no impact on individuals, households or families.’

An HMRC spokesperson said: ‘MTD will bring significant long-term benefits for sole traders and landlords. Keeping digital records will make it easier for them to get their tax right, freeing up time to grow their business, and give them greater insight into their finances and tax liabilities.’

Grattage, J. (2026, June 30). MTD to cost £380m for £20k earners. Business & Accountancy Daily.

https://www.accountancydaily.co/mtd-cost-ps380m-ps20k-earners