Draft legislation published for MTD for Income Tax and penalty reform

HM Revenue & Customs published draft legislation on 21 July 2025 to refine and simplify the Making Tax Digital (MTD) for Income Tax and penalty reform regimes¹. The measures set out who must join MTD, who is deferred or exempt, and technical changes to the penalty system¹.

Under the draft rules, those with a qualifying income of £20,000 or more in the 2026 to 2027 tax year will be required to join MTD from April 2028¹. MTD users will be required to submit their end of year tax return using MTD-compatible software¹.

Certain groups will be deferred from MTD until at least April 2029, including ministers of religion, Lloyd's underwriters, and recipients of Blind Person's Allowance¹. Others will be permanently exempt, including individuals with power of attorney and non-UK resident entertainers with no other qualifying income¹.

The draft legislation also introduces technical and policy amendments to ensure effective implementation of MTD and penalty reform, including the authority to cancel or reset late submission penalty points and cancel associated financial penalties¹.

The publication includes draft legislation, draft Income Tax (Digital Obligations) Regulations 2026, and an explanatory note¹. Comments can be emailed to makingtaxdigitalconsultations@hmrc.gov.uk by 16 September 2025¹.

Why it matters for households

The draft rules affect self-employed people and landlords with qualifying income of £20,000 or more in the 2026 to 2027 tax year, who would need to join MTD from April 2028¹. Once in MTD, they would have to file their end of year tax return through MTD-compatible software rather than through HMRC's existing online service¹.

Some people are given more time. Ministers of religion, Lloyd's underwriters, and recipients of Blind Person's Allowance would be deferred from MTD until at least April 2029¹. Individuals with power of attorney and non-UK resident entertainers with no other qualifying income would be permanently exempt¹.

The penalty changes would give HMRC the authority to cancel or reset late submission penalty points and cancel associated financial penalties¹. The detail of how penalty points and late payment penalties work is set out in our guide to Making Tax Digital penalty points and late payment penalties.

What happens next

The consultation on the draft legislation closes on 16 September 2025, with comments sent to makingtaxdigitalconsultations@hmrc.gov.uk¹. The draft Income Tax (Digital Obligations) Regulations 2026 are among the documents published for comment¹. Further detail on income tax and self assessment is available in our tax section.