Background
Following several postponements by the government, Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will commence for landlords and sole traders with qualifying income over £50,000 from April 2026.
More individuals will gradually be brought into MTD ITSA as the income level requirement will reduce to those with income over £30,000 from April 2027 and to £20,000 from April 2028.
Detail
MTD ITSA is one of the biggest changes in taxpayer reporting since Self-Assessment was first introduced back in 1996. Under the regime certain taxpayers will no longer simply report their income once a year on a Self-Assessment Tax Return but will be required to keep digital records and submit quarterly reports to HM Revenue & Customs (HMRC) as well as a final declaration at the end of the year.
The taxpayers affected from April 2026 will be landlords and the self-employed whose aggregate turnover/gross rental income from those sources exceeds the relevant thresholds, the initial threshold being £50,000.
The threshold is based on the income levels that appeared on an individual’s Self-Assessment tax return submitted to HMRC for the 2024/25 tax year.
HMRC have previously written to taxpayers who they believe may be affected to advise them of the situation, however HMRC will not be providing any free tools, as they do for self-assessment, to aid taxpayers in this change. Instead, the submissions must be made through third party software which invariably will be an additional cost which must be factored in for these taxpayers. There are some free third party software applications available, such as a Sage basic licence, but these may only be suitable for individuals with limited transactions or very straight forward record needs.
As well as the cost of software, there will be additional work required from taxpayers or their agents in order to comply with the new regime along with a number of new deadlines and processes in what is a completely new tax reporting system.
We are in the process of contacting the clients who, as a result of their Self-Assessment returns submitted by us for the 2024/25 tax year, will be mandated to submit quarterly reports to HMRC, in order to offer support in registering for MTD and to discuss the software options they are likely to need to assist in complying with these new quarterly reporting requirements.
It should be noted that taxpayers already in Self-Assessment who do not meet the MTD ITSA thresholds will continue to submit returns in the usual way. It is clear however that the government’s aim is to continue bringing more and more taxpayers into the digital reporting world and we will continue to provide updates in our bulletins around this area as further changes arise.
If you are in any doubt whether you will be affected by the upcoming MTD ITSA regime or would like more information on the points raised above, please speak to your usual contact or our Tax Manager Jo Fahy.
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