HMRC is forcing people earning as little as £4,000 to comply with its Making Tax Digital (MTD) system, sparking outrage among low-income taxpayers. A former sole trader has been told he must adhere to the new digital tax rules for another three years, despite falling below the income threshold.
Case Study: Garry Piccolo
Garry Piccolo, a 69-year-old former glass installer, switched from being a sole trader to an employee last year. However, he still earns a small rental income of £3,680 alongside his salary. Under the new MTD rules introduced by the Labour government, he is required to make five tax submissions each year. This has resulted in accountancy fees of £2,500, which he described as "ridiculous" in an interview with the Telegraph.
"The Government says it's making things easier for the self-employed, but everything you do brings another cost. I'm 69 and I don't want the hassle. It seems nonsensical that HMRC can't look at my situation and say 'that's unreasonable'," Mr Piccolo said.
Why He Must Comply
Although his rental income is below the £10,000 MTD threshold, his total income—including his £48,000 salary—amounts to £52,366. Under HMRC rules, taxpayers can only exit MTD once their income falls below the qualifying threshold for three consecutive years. This means Mr Piccolo is locked into the system despite his low rental earnings.
Expert Criticism
Michelle Denny-West, of accountancy firm Moore Kingston Smith, said Mr Piccolo's case exposes the rigidity of HMRC's approach. "Liability is decided by income levels in 2024-25 and, unless a taxpayer's MTD qualifying income stops entirely, subsequent changes in circumstances count for nothing. The result is a perverse outcome: a taxpayer whose income has collapsed to a level attracting no tax is nevertheless locked into MTD and forced to submit multiple filings each year despite having almost nothing to report," she explained.
HMRC Response
An HMRC spokesman defended the policy, stating: "Our approach is designed to prevent MTD customers from having to use different systems for self-assessment year-to-year, providing stability for those whose income fluctuates above and below the threshold. However, where a self-employment or property income source has permanently stopped, customers can notify us and won't be required to submit quarterly updates for that source of income."
The case highlights ongoing concerns about the burden of MTD on small earners and the inflexibility of HMRC's digital tax regime.
