Understanding that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) represents a significant change to taxpayers and HMRC for how self-employment and property income is reported, the government is giving a longer period to prepare for MTD.
The mandatory use of software is therefore being phased in from April 2026, rather than April 2024.
- Self employed individuals and landlords with an income of more than £50,000 will be required to submit their filings through compatible MTD for ITSA software from April 2026
- Self employed individuals and landlords with an income between £30,000 and £50,000 will be required to submit their filings through compatible MTD for ITSA software from April 2027
- Self employed individuals and landlords with an income of less than £30,000 can join voluntarily before these dates.
- Partnerships who were also due to be mandated for MTD for ITSA have now had the start date deferred with no new start date confirmed as of yet.
What about smaller businesses and Partnerships?
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. The government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the government’s tax administration strategy.
Victoria Atkins, Financial Secretary to the Treasury, said:
It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.
Smaller businesses in particular should be able to experience the benefits of increased digitalisation of Income Tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this.
Jim Harra, Chief Executive and First Permanent Secretary, HM Revenue and Customs, said:
HMRC remains committed to the delivery of Making Tax Digital as a critical part of our strategy for digitalising and modernising the tax system, but we want to make sure we get this right and deliver it effectively.
A phased approach to mandating MTD for Income Tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring.
ICAEW has also stated:
Over the last several months it had become clear that a deferral was inevitable, given the very small numbers of taxpayers in the restricted pilot and a long list of problems with digitalising tax reporting of trading and property income. These problems include the following.
- A lack of awareness of the MTD ITSA requirements among taxpayers – particularly those with a single source of property income.
- The lack of functionality to allow taxpayers to appoint more than one agent (eg, a bookkeeper to handle quarterly updates and an agent that completes the year-end processes).
- The lack of adequate solutions for the complexity associated with jointly-held property.
- The lack of a design solution for non-tax year accounting periods.
- The design around amendments and corrections and how they are made. A practical design for fitting together the various reporting elements is required. This includes quarterly updates, business source adjustable summary (BSAS)/end of period statement (EOPS), and final declarations. A design where quarterly submissions are of cumulative year-to-date figures could help to resolve this.
- Taxpayers being resistant to using commercial software. This is partly due to its cost, but also because many taxpayers use their mobile phone for their simple record keeping. ICAEW is currently unaware of any product being designed to address this. It is not yet clear whether the software market will deliver free (as opposed to freemium) products.
- The capacity of HMRC, software developers, agents and taxpayers to deliver the change. ICAEW is particularly concerned about the customer support that HMRC and the software industry will be able to deliver and the impact on its member firms.
The announcement relates to MTD for ITSA only. Making Tax Digital for VAT has already been implemented.
For further information and guidance of MTD for ITSA you can contact us on a no obligation basis.
Friend Partnership is a forward-thinking firm of Chartered Accountants, Business Advisers, Corporate Finance And Tax Specialists, Based In The UK