HMRC will roll out the first phase of Making Tax Digital for Income Tax (MTD for IT) next year, the latest step in the government’s plan to modernise the UK tax system.
Those impacted will need to comply with new regulations, including keeping digital records and submitting quarterly updates to HMRC using MTD-compatible software.
Who is affected?
These rules will affect sole traders and individuals with rental income, whose ‘qualifying income’ is above the MTD for IT threshold.
Qualifying income is annual turnover (before expenses) from both self-employment and annual gross rental receipts. It does not include other sources of income.
It is important to note that the new rules are mandatory and penalties will be applied for non-compliance, therefore, whilst the regulations don’t come into effect until April 2026, it’s important to prepare early.
What submissions are required?
Each quarter you will need to send HMRC a digital summary of the transactions in your software, known as a ‘Quarterly Submission’. A separate submission is required for each type of qualifying income.
Then, at the end of each tax year, a ‘End of Year Submission’ is required. This is effectively the Self Assessment Tax Return.
What about payment of tax?
The quarterly submissions are for reporting requirements only and no tax is currently due following submission.
Any tax due will be calculated upon preparation of your End of Year Submission, and the payment deadlines remain unchanged from Self Assessment deadlines. As such, any liability will be due for payment by 31 January following the end of the tax year (and 31 July if you are required to make payments on account).
What should I do now?
One of the first steps to take should be to determine your start date. Then, ahead of this, ensure that you’re set up with MTD-compatible software and have registered with HMRC for MTD for IT.
You should be aware that you will not be signed-up automatically, and that this is separate to any other registrations you may already have.
What is my start date?
The date you will be required to comply with MTD for IT will depend on your level of qualifying income.
The thresholds and mandatory start dates are as follows:
- Qualifying income of over £50,000 in the 2024/25 tax year:
- Your start date will be April 2026
- Your first quarterly submission will be due by 7 July 2026
- Qualifying income of over £30,000 in the 2025/26 tax year:
- Your start date will be April 2027
- Your first quarterly submission will be due by 7 July 2027
- Qualifying income of over £20,000 in the 2026/27 tax year:
- Your start date will be April 2028
- Your first quarterly submission will be due by 7 July 2028
Choosing software
You will need to ensure that any software you choose is MTD compliant and meets your own specific requirements.
We recommend using a cloud accounting software package. As well as keeping you compliant, cloud accounting software can also have many benefits, such as real-time insights into your finances and features like online invoicing.
Are there any exemptions?
Other than having income below the MTD for IT threshold there are two types of exclusions: digital exclusion and automatic exclusion.
Digital exclusions
If you believe any of the below may apply to you, an application can be made to HMRC to obtain a digital exclusion:
- It’s not reasonably practical for you to use digital technology due to age, disability, remoteness of location or any other reason.
- You are subject to an insolvency procedure.
- You are a practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records
It is worth noting that the exclusion is not guaranteed and HMRC can reject the application.
Automatic exemptions
These are available for:
- Foster carers
- Individuals who do not have a National Insurance Number
- Trustees and personal representatives
- Non-resident companies
- Those with Power of Attorney
This is not an exhaustive list and other exemptions may be available.
Finally…
Please do not hesitate to get in touch if you have any concerns or want to know more.
Rachel Roberts is a Private Client Tax Assistant Manager and would be happy to chat through any queries or concerns you have on 01242 776000 or rachel.roberts@randall-payne.co.uk.
