The £3,000 trading allowance 2027: do you still need MTD?

The £3,000 trading allowance 2027: do you still need MTD?

The trading allowance has been a key feature for self-employed individuals, providing a modest tax-free buffer of £1,000. However, recent discussions could change this to £3,000 by 2027. So, how does this potential increase impact your obligations under Making Tax Digital (MTD)?

What is the trading allowance?

Currently, the trading allowance offers a £1,000 tax-free threshold for self-employed income. If your gross income from self-employment is £1,000 or less, you can bypass the hassle of filing a self-assessment tax return. This is especially beneficial for those with minimal side incomes.

Proposed increase in allowance

In 2025, HMRC conducted a consultation exploring the possibility of raising the trading allowance to £3,000. As we edge into early 2026, these changes haven't been implemented yet. It's a proposition under consideration, but no definitive action has been taken.

Current scenario with trading allowance and MTD

As of 2026, the £1,000 trading allowance continues to apply. This means individuals with self-employment or property income exceeding £50,000 must adhere to MTD for Income Tax Self Assessment from April 2026. By April 2027, this threshold lowers to £30,000. However, if the allowance is increased to £3,000, low-income tradespeople could largely avoid the MTD digital records requirement.

Who could be affected?

The potential increase would mostly affect tradespeople with very small side incomes, odd-jobbers, and individuals undertaking occasional cash work. By raising the threshold, many could sidestep complex tax and digital bookkeeping requirements.

Why those earning over the threshold need MTD

If your income slightly exceeds the proposed £3,000 threshold, it's prudent to prepare for MTD requirements. Ensure to register for MTD and find compatible accounting software to facilitate your tax filing process.

Record-keeping expectations with MTD ITSA

Even if you're close to the threshold, maintaining accurate records remains imperative under MTD ITSA. Familiarize yourself with our guide on digital receipts and expense tracking. Keep abreast with HMRC's guidelines on MTD ITSA to ensure compliance.

Current position and considerations

As the proposed changes are not yet enacted, continue complying with the existing £1,000 threshold until further notice. Keep monitoring for future updates from HMRC consultations.

• Understand the current thresholds and who they impact
• Stay alert to HMRC announcements about potential changes
• Ensure you’re ready for MTD with appropriate software

If you're just above the threshold, register now and explore our self-assessment calculator to optimise your record-keeping.

FAQ section

• What is the current trading allowance? The current trading allowance is £1,000 as of 2026, allowing small-time earners to avoid filing tax returns if below this amount.
• When will the £3,000 allowance be confirmed? The proposal is under HMRC's consultation and has yet to be confirmed or implemented as of early 2026.
• How does the allowance interact with MTD? Those earning below the trading allowance won't need to follow MTD record-keeping if below the set threshold.
• What if I earn slightly over £3,000? You must register for MTD ITSA and ensure your record-keeping is compliant using digital solutions.