From April 2026, sole traders and landlords face an average setup cost of £350 for the Making Tax Digital for income tax self-assessment (MTD for ITSA) scheme.
HMRC projects an annual additional cost of £110 for those earning £30,000 to £50,000 annually. Those with earnings above £50,000 a year will incur transitional costs of £285, with ongoing annual costs of £115.
Around 780,000 individuals with income over £50,000 must use MTD for ITSA from April 2026. From April 2027, a further 970,000 people making between £30,000 and £50,000 will need to comply with the scheme.
The next stage of MTD, which aims to reduce errors and narrow the tax gap, is expected to generate £120m in the first year, rising to £465m by the 2027/28 tax year. HMRC estimates a £561m transitional cost and an ongoing net increase of £196m in tax compliance costs.
Transitional costs cover familiarisation, training, hardware upgrades and accountancy expenses. Ongoing expenses include MTD-compatible software subscriptions, time spent on quarterly updates, and bridging software for spreadsheet users.
HMRC estimates that the total IT and non-IT costs for this MTD phase will hit £500m by March 2028.
Currently, plans to expand MTD for ITSA to individuals earning below £30,000 are on hold. HMRC also has plans to extend the scheme to partnerships at a later date.
Commenting on the estimates, 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."
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