Budget 2025: Key MTD Updates You Need to Know

2nd December 2025

This year’s Budget included some big tax headlines, but there were also a few quieter changes that matter if you’re getting ready for Making Tax Digital (MTD) for Income Tax. Here’s a quick, no-jargon update on what’s changed and what it means for you.

1 – No Penalties for Late Quarterly Updates in 2026/27

Good news! If you’re joining MTD in April 2026, HMRC has confirmed there will be no penalties for late quarterly updates during the 2026/27 tax year.

You’ll still need to file them—but if you’re late, you won’t get a penalty point.

A few things to note:

This “soft landing” is only for 2026/27.
It doesn’t cover late Self Assessment tax returns.
Late payment penalties still apply from April 2026 (and get tougher in 2027).

2 – Some Taxpayers Will Get More Time—or Be Fully Exempt

HMRC plans to delay MTD to 2027 for some small groups, such as:

People receiving income from trusts or estates
Those using averaging (like farmers)
Foster carers

A very small group will be fully exempt—those under a court-appointed deputyship.

3 – Updated HMRC Guidance: What You Need to Know

HMRC has also refreshed parts of its MTD guidance.

The main takeaways:

Check your qualifying income yourself

Don’t wait for HMRC to tell you to sign up—taxpayers are now expected to check their own income levels to see if they need to join MTD.

Small side businesses and allowances

If you have a small side business under £1,000 and didn’t declare the income last year, you won’t need digital records for it.
But if you previously claimed the trading or property allowance and had income over £1,000, digital records will be needed from 2026/27.

Rent-a-room relief

You’ll need digital records for rent-a-room income if your previous tax return showed other UK property income or property profits above £7,500. If you’re only in MTD because of a trade, this usually won’t apply.

The Bottom Line

These changes make the first year of MTD a bit easier, and HMRC has cleared up some tricky areas around allowances and record-keeping. But a few details are still missing, and we expect more guidance before April 2026.