Self-employed people making over £20,000 ‘encouraged’ to get income down to avoid new tax rules

New rules for self-employed workers and landlords risk creating another “cliff edge” that tempts people to limit their earnings, tax experts have warned.

From 6 April 2026, sole traders and landlords with a qualifying income of more than £50,000 must keep digital records and send quarterly summaries of their income and expenses to HMRC under the Making Tax Digital (MTD) rules. The threshold will fall to £30,000 from April 2027 and £20,000 from April 2028.

The updates are not the same as filing four tax returns a year, but experts say confusion over the rules, software costs and the extra admin burden have left some self-employed people wondering whether it is worth staying below the threshold – even though doing so is considered unwise by tax specialists.

HMRC says around 864,000 individuals will be affected immediately because they have a qualifying annual income of over £50,000, but an extra two million will be hit over the next two years as the threshold falls.

In theory, the new system is being introduced to make the tax system more streamlined and fair, reducing the number of errors and giving the taxman a more real-time overview of people’s finances.

However, HMRC hasn’t introduced a free way for sole traders to file those quarterly updates through their regular online portal. Instead, they have to sign up for third-party software, many of which charge a subscription fee.

This has created a lot of anxiety and confusion amongst sole traders because of the extra admin.

Some even feel they would rather keep their income below the threshold to avoid it – but experts have warned against this tactic as a workaround.

On one Facebook forum, a self-employed worker said: “So many trades will no longer be viable or will go under the radar, cash-only payments, and not declaring income. The Government are making things so difficult and stressful to be self-employed right now and certainly in the future.”

Dhruv Chadha, founder of Record-OS, a self-assessment platform for sole traders, said: “The earnings threshold for MTD creates a new ‘cliff edge’ threshold by which sole traders may be encouraged to reduce their trading to avoid quarterly reporting.

“This type of encouragement to reduce income already exists in the UK tax system with the £90,000 VAT threshold and the £100,000 income threshold for free childcare – and so it is troubling to see government policy create a further threshold of this type.”

Nouran Moustafa, a financial adviser at Roxton Wealth, added: “Some people may deliberately stay under the threshold for MTD, turn down work or avoid growth because the admin feels bigger than the reward. That is bad for enterprise.

“Others may be tempted to rely more on cash, which is exactly the opposite of what the system is trying to achieve.”

Will cutting your income save you from MTD?

Glenn Collins, head of technical and strategic engagement at ACCA, said the major problem with this is that for anyone considering reducing their income who has already earned over that amount, it is already too late for it to make a difference.

“While it is understandable that some self-employed individuals are tempted to cap their earnings below the £50,000 threshold to evade the initial rollout of MTD, this is a short-sighted strategy that will not provide long-term administrative relief,” he said.

“Under HMRC’s rules, once a business crosses the threshold, they are locked into the MTD regime unless their income stays below that limit for three consecutive tax years.

“Furthermore, with the threshold scheduled to drop to £30,000 in 2027 and £20,000 in 2028, artificially suppressing growth today only delays the inevitable compliance burden by a matter of months, while actively harming the business’s economic potential.”

Collins added that much of the concern around MTD is unnecessary, and that it is not as complex as many self-employed workers think, meaning people could be limiting their earnings for no reason. However, the Government has failed to communicate the changes effectively.

“Quarterly filing under MTD is not the same as submitting a tax return. It’s a summary of reconciled bank and cash transactions, not a full calculation of tax owed,” he explained.

“That distinction matters, because much of the public anxiety around MTD stems from a misunderstanding that people will be completing four tax returns a year. It won’t. But that confusion itself is a problem and it points to a significant communications gap that HMRC still needs to close.”

How do I know if I’m impacted and what do I do next?

If your qualifying income from self-employment or property was more than £50,000 in the 2024/25 tax year, you will need to join MTD this year. This means keeping digital records and sending quarterly updates to HMRC, with the first deadline falling on 7 August 2026.

The threshold is based on gross income from self-employment or property before expenses are deducted, rather than profit.

For the current year, you need to bear in mind if you expect to earn more than £30,000, as you will then need to report from next year.

Chadha said that switching to cash transactions may sound like a workaround, but it won’t work in practice, as all transactions are covered.

“The reporting requirements include both digital and cash transactions, so businesses cannot shift to more cash-based trading to escape the quarterly reporting,” he said.

“The threshold is also based on receipts rather than profit amounts; therefore, even loss-making businesses over the £50,000 threshold must move to quarterly reporting.

“Impacted sole traders and landlords are advised to register and prepare for MTD as soon as possible,” he added.

HMRC was contacted for comment.