Spring Statement 2025 and Updates to MTD for Income Tax

Key measures announced in today’s Spring Statement:

• Expansion of Making Tax Digital (MTD) for Income Tax to sole traders and landlords with income over £20,000 from April 2028
• New investment in HMRC’s technology to crack down on tax evasion
• The option for employed parents of paying the High Income Child Benefit Charge (HICBC) via PAYE from August 2025, removing the need for self-assessment registration
• Consultation on strengthening HMRC’s penalty regime for errors and failure to notify within the MTD scheme (new rates will increase to 3% of the tax outstanding when tax is overdue by 15 days, and 3% when overdue by 30 days. The annualised rate will increase to 10% (from 4%))

Making Tax Digital for Income Tax Updates

This measure could result in hundreds of thousands of lower-income taxpayers being brought into the MTD regime in April 2028. There were hints that the £20,000 threshold could be reduced even further, with the government considering how to bring the benefits of digitalisation to millions of sole traders and landlords with income less than £20,000.

It was announced a while ago that third-party software would be needed to maintain digital records and file quarterly submissions under MTD. However, it was believed HMRC would provide online software to facilitate the filing of year-end returns (or year-end submissions could be made using third party software).

We have now been informed that HMRC will not be providing an option to file through them for MTD purposes, meaning those affected would need to purchase commercial software. Affected taxpayers will need to look into this carefully, as not all software will allow for quarterly and year-end submissions.

Affected taxpayers who do not use an accountant should consider whether it is beneficial for them to engage an accountant, who will be able to make submissions to HMRC on their behalf. Taxpayers who wait until the eleventh hour (31 January) to submit their year-end return may be in for a nasty shock if it turns out their chosen software cannot make year-end as well as quarterly submissions, potentially leading to late filing and payment penalties, plus potential interest to pay.

As a Xero Partner, Alexander Myerson & Co can help. We offer full bookkeeping services, or for clients happy to complete their own bookkeeping, we can support those businesses with onboarding and ongoing training and support, meaning one less thing to worry about.

Please get in touch if you would like to discuss how this affects you, or complete the form on the right.