The move to Making Tax Digital for income tax from 2026 will cost sole traders and landlords on average £350 to set up the correct reporting system.

HMRC estimates that the new MTD rules will result in an average annual additional cost of £110 for those reporting within the £30,000 to £50,000 threshold, while those with income over £50,000 will face transitional costs of £285, with ongoing costs of £115 a year.

Up to 780,000 people with business or property income over £50,000 will have to report through the MTD for ITSA service from April 2026 with a further 970,000 set to sign up from April 2027 when the scheme extends to those with income between £30,000 and £50,000.

Under MTD for income tax, landlords and sole traders will have to report income on a quarterly basis but the government dropped the requirement for a fifth report consolidating the annual information, a move announced at the Autumn Statement last November.

The extension of MTD is set to raise an additional £120m in tax in the first year of operation, rising to £465m in 2027-28. The new reporting requirements are designed to reduce the level of errors and help to close the tax gap when they come into force from April 2026.

HMRC estimates a transitional cost to business of around £561m and a net increase in the continuing costs of tax compliance of around £196m for those businesses mandated to use MTD for ITSA.

Transitional one-off costs will include time spent in familiarisation with the new MTD reporting with digital record keeping and quarterly submission of information, in-house training, the purchase of new hardware or upgrading of existing hardware and additional accountancy or agents' costs. Transitional costs can be offset against the business' profits for tax purposes.

Ongoing costs for business will be made up of the cost of subscriptions to MTD compatible software systems, additional time for making quarterly updates, and the cost of bridging software for those who want to continue using spreadsheets. Software and agent costs for business purposes, are tax deductible.

HMRC estimates IT and non-IT costs for this next phase of MTD expansion will be in the region of £500m to the end of March 2028.


'MTD for ITSA is intended to help businesses get their tax right, with mandatory use of digital record keeping and using MTD compatible software to provide updates and returns digitally,' HMRC said.

'These measures are expected to improve businesses' experience of dealing with HMRC as managing their tax affairs will be simpler. Once businesses are used to operating the new MTD processes, we anticipate that they will find that MTD makes it easier for them to get things right and reduce errors.'

At the moment, original plans to extend MTD for ITSA to those with income below £30,000 are on hold, while HMRC said it ‘remains committed’ to extending the scheme to partnerships.

To be fully compliant and set up, please get in touch: lee@longdencompany.co.uk.

HMRC’s more detailed guidance can be found using this link: https://www.gov.uk/government/publications/extension-of-making-tax-digital-for-income-tax-self-assessment-to-sole-traders-and-landlords/making-tax-digital-for-income-tax-self-assessment-for-sole-traders-and-landlords