Making Tax Digital for Low-Income Taxpayers [6 Challenges]

Making Tax Digital for Income Tax (MTD for ITSA) requires sole traders and landlords to keep digital records and submit quarterly updates to HMRC instead of filing once a year.

And while the shift towards digital record-keeping and quarterly updates aims to make the system more efficient and transparent, it doesn’t affect everyone equally. For low income taxpayers, the transition can feel more like an added burden.

If you earn below or just above the MTD threshold, you may be wondering whether the effort of complying is proportionate to your income – and whether the system is designed with your needs in mind.

This article explores the key challenges of MTD for low income taxpayers, along with practical ways to navigate them.

Key points

• MTD changes tax from a once-a-year task into an ongoing process 📅
  Instead of submitting a single Self Assessment, you now need to keep digital records and send quarterly updates. For low income taxpayers, this can feel like a significant increase in administrative burden relative to their income.
• Low income taxpayers may not be affected yet, but they should still prepare ⏳
  MTD is being introduced in phases, starting with higher earners and gradually lowering thresholds. If your income fluctuates, you could be brought into the system in the future, so it’s worth getting ready early.
• The biggest challenges are time, cost, and complexity ⏰
  Paying for software, learning new systems, and keeping up with multiple deadlines can feel disproportionate if you don’t earn much. Irregular income and limited digital confidence can make compliance even harder.
• Simple habits and tools can make MTD much easier to manage 🛠️
  Using automated software, keeping records up to date, and setting reminders for deadlines can significantly reduce stress. The goal is to minimise manual work and avoid last-minute rushes.

How does MTD for ITSA work for low income taxpayers?

MTD for ITSA requires eligible sole traders and landlords to manage their tax digitally throughout the year, rather than submitting a single annual return.

Under MTD requirements, if you meet the income threshold, you need to:

• Keep digital records of your income and expenses using compatible software
• Submit quarterly updates to HMRC throughout the tax year
• File a final end-of-year declaration to confirm your overall tax position

Instead of submitting one return annually, your tax reporting is spread throughout the year. This gives HMRC a more up-to-date view of your finances and is intended to reduce errors and improve accuracy.

Who are ‘low income taxpayers’ under MTD?

In the context of MTD for ITSA, low income taxpayers typically include:

• Sole traders with modest annual profits
• Freelancers working part-time or alongside employment
• Landlords with limited rental income
• Side hustlers earning supplementary income

Many of these individuals operate on tight margins. They may not have accountants, dedicated admin time, or the budget for complex software. For them, any additional compliance requirement needs to be simple, low-cost, and easy to maintain.

The MTD thresholds for low income taxpayers

If you are a low income taxpayer, you may not need to comply with MTD immediately. The rules apply in phases:

• From April 2026 – for those earning over £50,000
• From April 2027 – for those earning over £30,000
• From April 2028 – for those earning over £20,000

Even if you’re not over the threshold this year, if your income fluctuates, you could move into the MTD system in a future tax year.

The 6 biggest challenges of MTD for low income taxpayers

What may be a small adjustment for larger businesses can quickly become a noticeable burden for sole traders, freelancers, and side hustlers working with limited time and resources.

From increased admin to added costs, MTD introduces several challenges that can feel disproportionate to the level of income being earned. Here are some of them:

1. The shift from annual to quarterly reporting

One of the biggest changes under MTD is the move from a single annual Self Assessment return to multiple submissions throughout the tax year.

If your income is relatively small or irregular, submitting updates every quarter may seem like overkill.

The new rules introduce:

• More deadlines to track
• Increased administrative effort
• A higher risk of mistakes or missed submissions

For someone juggling a side hustle alongside a full-time job, remembering four separate deadlines instead of one can quickly become stressful.

Quarterly reporting also requires consistent attention throughout the year – something many low earners simply don’t have time for.

2. The cost of compliance

MTD requires the use of compatible software to keep digital records and submit updates to HMRC. While this may be manageable for larger businesses, it can be a pain point for low income taxpayers.

Common concerns include:

• Paying monthly subscription fees for software
• Upgrading from spreadsheets or paper records
• Needing professional support to navigate software

Even relatively low costs can add up over time. For someone earning a few thousand pounds a year from freelance work, the expense may feel hard to justify.

Beyond software, there’s also the cost of time. Learning a new system, keeping records updated, and ensuring compliance all take effort – and time is often limited for those managing small-scale income streams.

3. Digital skills and confidence gaps

Not all taxpayers are equally comfortable with digital tools. While MTD assumes a certain level of digital literacy, this isn’t always the case in reality.

Some of the key challenges when it comes to digital skills include:

• Navigating new apps or platforms
• Understanding how to categorise transactions correctly
• Troubleshooting errors or discrepancies

For low income taxpayers who aren’t confident with technology, this can create anxiety and increase the likelihood of errors.

There’s also a genuine risk that some individuals may struggle to comply at all, particularly if they lack access to reliable internet or suitable devices. Although digital exemptions exist, they may not cover everyone who finds the system difficult to use.

4. Irregular income makes things harder

Many low income taxpayers don’t have a stable, predictable income. Freelancers, gig workers, and part-time earners often experience fluctuations throughout the year.

Quarterly updates require you to report income and expenses regularly, regardless of how consistent your earnings are.

This can lead to:

• Confusion or misleading snapshots of your financial position
• Difficulty estimating tax bills accurately
• Stress when income is low but reporting obligations remain the same

Reporting during a slow period can feel discouraging, especially if it highlights low earnings without providing immediate financial benefit.

5. Penalties and compliance pressure

MTD introduces a points-based penalty system for late submissions. While this is more flexible than instant fines, it still requires consistent compliance.

This brings new challenges for low income taxpayers, such as:

• Greater likelihood of missing deadlines due to busy schedules
• Less margin for error when managing multiple responsibilities
• Accumulation of penalty points over time

Even if fines aren’t immediate, the system can feel unforgiving. A missed deadline here and there can eventually lead to financial penalties – something low earners are less equipped to absorb.

6. Perceived lack of value

One of the most common concerns among low income taxpayers is whether MTD actually benefits them.

You might have heard some common complaints such as:

• ‘It’s more work for the same outcome’
• ‘I don’t earn enough for this to matter’
• ‘This feels designed for bigger businesses’

While MTD aims to improve accuracy and reduce errors, these benefits may not feel tangible for those with simpler financial situations.

To make MTD feel worthwhile, the process needs to deliver clear, immediate value – such as better visibility over finances or easier tax planning.

Practical ways to manage MTD as a low income taxpayer

Despite the challenges, there are straightforward ways to make Making Tax Digital more manageable without adding unnecessary stress. A few small changes to how you organise your finances can make a big difference over time.

Here are four ways to make the transition easier:

1. Choose simple, automated tools

The right software can take much of the pressure off MTD compliance.

Instead of relying on manual processes, look for tools that do the heavy lifting for you – automatically categorising transactions, preparing updates in the background, and giving you real-time visibility of your tax position.

The less you have to input or manage yourself, the easier it becomes to stay on track without constant effort.

2. Build small, consistent habits

MTD works best when you spread tasks out rather than leaving everything until the last minute. Setting aside an hour or two per week or month to review your transactions, organise receipts, and check your tax bill can prevent issues from building up.

3. Stay ahead of deadlines with reminders

With multiple submissions required throughout the year, it’s easy to lose track of key dates. Setting up simple reminders – whether through your calendar, app notifications, or email alerts – can help you stay organised.

Staying aware of the deadlines reduces the risk of missed submissions and penalty points, giving you one less thing to worry about.

4. Keep your setup as simple as possible

When your income is relatively straightforward, your financial setup should be too. Using a single business account, keeping personal and business spending separate, and sticking to clear, simple expense categories can make everything easier to manage.

The simpler your system, the less time you will spend maintaining it – and the easier it’ll be to stay compliant with MTD.

How ANNA removes the stress of MTD for low income taxpayers

For low income taxpayers, the biggest challenge with MTD isn’t just compliance – it’s doing it without adding extra time, cost, or complexity to your day.

That’s where ANNA is fundamentally different.

Instead of expecting you to learn accounting, manage spreadsheets, or juggle multiple tools, ANNA handles everything in one place – with most of the work happening automatically in the background.

With ANNA, you get:

• Free Self Assessment submission: Your 2025/26 Self Assessment is prepared and filed at no extra cost. Already filed elsewhere? ANNA will refund the filing fee when you switch.
• Automated bookkeeping: Transactions are recorded and categorised for you, so there’s no need to manually log income and expenses.
• Real-time tax estimates: Your tax bill is continuously updated, helping you stay in control and avoid surprises.
• MTD-ready submissions: Quarterly updates are prepared automatically, reducing admin and lowering the risk of errors.
• Invoicing and payments in one app: Invoicing happens seamlessly, without the need for separate tools.
• A built-in UK business account: Your income and expenses in one place, with everything connected.
• Automated VAT, Corporation Tax, and ITSA support: All your tax obligations are handled together.
• Seamless payroll: ANNA’s simple payroll feature allows you to pay one employee.
• Smart reminders and 24/7 support: Nothing slips through the cracks.

Open an account today, and focus on earning while ANNA takes care of the rest.