Making Tax Digital (MTD) for Income Tax Self-Assessment
Update: The mandatory use of software is therefore being phased in from April 2026, rather than April 2024.
From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software. Those with an income of between £30,000 and £50,000 will need to do this from April 2027.
The government has also announced a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold. The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further roll out of MTD for ITSA after April 2027.
Mandation of MTD for ITSA will not be extended to general partnerships in 2025 as previously announced.
You may be aware, but if you are not, all VAT registered businesses are now required to use MTD compliant software to prepare and file their VAT Returns.
However, with effect from April 2024, MTD is being extended to all sole-trader businesses and landlords, regardless of whether they are VAT registered or not, with gross income or turnover (not profit and excluding VAT if relevant) above £10,000. With such a low threshold, this will mean that it will affect virtually all sole-trader businesses and landlords. The same rules will not be introduced for partnerships until April 2025 and the date that it will affect Limited Companies has not yet been announced (although the thinking is that it will not be too long until it does). Please note that if you are a sole trader business and also a landlord the £10,000 threshold applies to the combined income from both sources and not £10,000 for each source.
Whilst April 2024 may seem some while away, preparing for MTD does take some time and the date to which the annual accounts are prepared will also impact the date from which sole-traders and landlords should consider when it is best to move over to using MTD compliant software.
I would therefore urge anyone who is going to be affected by these changes, and who is not already using MTD compliant software, to contact us so that we can discuss the options available and timings to ensure that all affected sole-traders and landlords become MTD compliant in time for when the new rules are introduced.