The introduction of Making Tax Digital (MTD) for income tax from 2026 will cost sole traders and landlords an average of £350 to set up, with ongoing costs of £110 to £115 annually, depending on income levels. Those earning over £50,000 will transition in April 2026, followed by those with income between £30,000 and £50,000 in April 2027.
Landlords and sole traders will need to report income quarterly, though a fifth annual report requirement has been dropped. HMRC expects MTD to raise £120m in its first year, increasing to £465m by 2027-28, aiming to reduce tax errors and close the tax gap.
Businesses will face £561m in transitional costs and £196m in ongoing compliance costs. These include software subscriptions, hardware upgrades, and additional accountancy fees, which are tax-deductible. The overall IT and non-IT costs of this expansion are estimated at £500m by March 2028.
HMRC said MTD will simplify tax management, helping businesses reduce errors and improve their interactions with HMRC. Expansion to those earning below £30,000 remains on hold, though HMRC plans to eventually include partnerships.
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