Making Tax Digital (MTD) is one of the biggest changes to the tax system since the introduction of Self Assessment, therefore, it is important to be aware of what will be required.
Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).
Background
MTD will be mandatory for self-employed individuals and landlords with an income of more than £50,000 from April 2026. This threshold will then reduce to £30,000 form April 2027. If you have both self-employment income and rental income it is the combined income figure that will be used by HMRC when determining if you are above the thresholds for MTD.
In summary, under MTD rules self-employed individuals and landlords must keep their business records in a digital format, and make quarterly submissions (known as quarterly updates) to HMRC.
Changes
HMRC has carried out a review of MTD, which is currently planned to come into effect in April 2026.
The review has resulted in the following changes, which will be put into regulations in February 2024:
- Improving the design of quarterly updates
Under the initial proposed rules taxpayers were required to report totals for the 3-month period covered within the update, instead, now, each update will be a cumulative total of income and expenses.
Doing this will remove the need for taxpayers to have to resubmit a previous update where corrections are required. Instead, the year-to-date figures submitted each quarter will reflect any adjustments made.
For taxpayers with income under the VAT threshold, HMRC will also continue to support the use of 3-line accounts within MTD, which will avoid the need to categorise expenses when completing quarterly updates.
- Removing End of Period statements
Under the initial proposed rules taxpayers were required to make 4 quarterly submissions, followed by an End of Period statement and a final declaration.
Feedback has been that the End of Period statement is potentially confusing for users as it duplicates information contained within the final declaration, as such HMRC have agreed remove the requirement to submit an End of Period statement. The submissions required will now be four quarterly updates, followed by a final declaration which reports finalised figures for all income sources, equivalent to the self assessment tax return.
- Easements for landlords with jointly-owned property
Landlords who let properties jointly are taxed on their share of the income (subject to special rules for people who are married or in a civil partnership), which would then need to be added to any income they receive from properties let in their sole name, to form part of their UK property business or overseas property business income.
Under MTD this could result in additional challenges for those affected, as they would need to compute their share of income and expenses each quarter, requiring them to transfer transactional records to one another. To help reduce this additional burden landlords with jointly owned property will be able to:
- Chose not to submit quarterly updates of their expenses which relate to jointly owned property. These records will still need to be submitted before the tax position for the year is finalised.
- Keep less detailed digital records in relation to their jointly owned properties to simplify the transfer of records between joint owners. Although no further details have been provided on this yet.
- Exempting specific groups from MTD
HMRC has confirmed that foster carers will not be required to operate MTD for ITSA in relation to receipts for qualifying care income.
Also, MTD for ITSA will not be required for those who are unable to obtain a National Insurance number. If the inability to obtain an NI number is only temporary the intention is that the taxpayer would subsequently be mandated into MTD.
- Enabling taxpayers to be represented by more than one tax agent
HMRC are developing a solution to allow multiple agents to act on a taxpayer’s behalf in relation to MTD.
The aim is that the above changes, together with the changes made in relation to the cash basis will help to simplify the process of reporting to HMRC.
If you have any questions for our Tax experts as a result of this Autumn Statement, please contact us on 01242 776000 or tax@randall-payne.co.uk.
