Making Tax Digital (MTD) for Income Tax
It has been confirmed that Making Tax Digital (MTD) for income tax will be phased in for self-employed individuals and landlords from April 2026.
What is MTD for Income Tax?
MTD is a mandatory requirement being introduced for eligible individuals (self-employed and landlords) to keep digital records and report their income and expenses to HMRC quarterly, instead of filing just a single Self-Assessment tax return each year.
From April 2026, if your gross turnover, rents or a combination of the two are greater than £50,000 then your income and expenses will need to be reported digitally to HMRC every quarter with an annual reconciliation also being completed (which we expect to be similar to the annual tax return).
From April 2027, the threshold will drop to £30,000 and it was confirmed in yesterday's Spring Statement that MTD for income tax will be made mandatory for the self-employed and landlords with gross income of more than £20,000 from April 2028.
Digital records
MTD for income tax will require self-employed businesses and landlords with qualifying income to keep digital records and file quarterly updates through an HMRC compatible software. HMRC have said that they will not be producing their own software and so individuals who will be affected by the new legislation need to choose a suitable commercial software package or use tailored spreadsheets and bridging software.
If you are not already using a software to maintain digital records or have any questions and would like some help, please get in touch with the office to discuss your particular circumstances, solutions, pricing and the support available well in advance. We have already partnered with providers such as Xero and Quickbooks (QBO) and have bridging software solutions to help manage the ongoing MTD transition, which started with VAT submissions several years ago.
What happens next?
From April 2025, HMRC will be writing to individuals whose 2023 / 2024 Self-Assessment tax returns reported gross income from self-employment and rental sources that was close to (or over) £50,000. Receipt of this letter will indicate that you are expected to comply with the new Making Tax Digital for Income Tax rules in the near future - Don’t panic but please speak with us asap if you receive an HMRC letter regarding MTD or expect your circumstances to meet the criteria described above, whether you receive a letter of not over the coming months!
Digital Tax Compliance Continues to Evolve
With most compulsory VAT registered businesses reporting under Making Tax Digital (MTD) for a few years now, HMRC are looking towards the next tranche of MTD compliance.
The following update may already be in hand or may not affect you directly but feel free to forward on to anyone that you think may benefit from the summary:-
Making Tax Digital for VAT – what’s next?
The Government is extending the requirement to operate (MTD) beyond compulsory VAT registered businesses to include voluntarily VAT registered businesses. For VAT periods starting on or after 1stApril 2022 voluntary VAT registered businesses will also be required to keep digital records and submit VAT returns through a compatible software. Manual returns will no longer be submitted through HMRC’s website. Affected businesses may have already received a letter from HMRC about these changes.
If you or anyone you know would like to discuss this with one of the team including the tailored solutions available, please feel free to call the office and speak to the team.
Making Tax Digital for Income Tax
From 6th April 2024, MTD will also apply to the self employed and landlords with aggregate turnover and / or gross rental income of greater than £10,000.
Affected taxpayers will be required to submit to HMRC quarterly returns on qualifying income and expenses via their personal digital tax account. For now this does not affect taxpayers who are taxed entirely via PAYE or trade only via a limited company. MTD for corporation tax is expected to be announced after MTD for income tax has been successfully rolled out.
Please note that if you have turnover from your self employment of lower than £10,000 and gross rental income of less than £10,000 but in aggregate they are over £10k, both will need to be reported quarterly under MTD as the gross aggregate is key.
We are currently awaiting further information from HMRC regarding the specific rules on MTD for income tax but in the meantime are already working with various software solutions to help meet your needs.
We will keep you posted with further updates as we receive them but please speak with us if you have any queries in the meantime.