An independent examination of Making Tax Digital for Income Tax, its practical effects, and the unintended consequences for taxpayers
From April 2026, Making Tax Digital for Income Tax (MTD ITSA) will apply to many self-employed people and landlords.
Most people assume that once income falls to a very low level, the digital reporting burden falls away.
That assumption is wrong.
Under the MTD ITSA rules:
Entry into MTD is based on historic total qualifying income
Once a taxpayer is brought into MTD ITSA, there is no low-income escape
Leaving MTD ITSA is only possible when:
All businesses and property income cease, or
Qualifying income remains below the exit threshold for three consecutive tax years
The size of any continuing business is irrelevant.
Consider this entirely ordinary situation:
A taxpayer had a sole trade with turnover of £60,000 in 2024/25
That business later ceased
The taxpayer continues with a separate small activity earning £2,000 per year
From April 2026:
The taxpayer is required to join MTD ITSA
The £2,000 activity must:
Be kept in MTD-compatible software
Submit quarterly updates
File an annual End of Period Statement
This continues even though the income is tiny
The taxpayer cannot leave MTD ITSA for at least three years
This applies even though the remaining activity is small, simple, and produces very little income
A £2,000 business is forced into a system designed for much larger operations.
The compliance burden:
Does not scale with income
Cannot be avoided by “keeping things simple”
Requires the use of commercial software
Continues year after year regardless of how small the activity remains
A large historic business can permanently drag a later micro-business into MTD ITSA.
This is a serious barrier for people who:
Scale down
Semi-retire
Try to keep a small sideline business alive
This outcome is not hypothetical.
It follows directly from:
The MTD ITSA regulations
HMRC’s published guidance
HMRC confirmations given in Freedom of Information responses
The rules work exactly as described above.
This website focuses on one issue only.
Not because it is the only problem with MTD ITSA —
but because this single rule is so clearly disproportionate that it deserves to be called out.
This site does not argue against digital tax reporting in principle.
It highlights a specific outcome that is, quite simply, bonkers.
If you have any comments on this bonkers situation or feedback about this page please use the Contact Us form.
This website site explains HMRC’s FOI-revealed position as of December 2025. This is not personalized tax advice.