Background
Although the Chancellor’s Spring Statement was fairly quiet in relation to taxation, one of the announcements made confirmed that which was expected by most tax professionals, the threshold for compliance with Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will be reduced again to bring more taxpayers under the digital regime of reporting.
It has been widely publicised that MTD ITSA would be introduced for landlords and sole traders with qualifying income over £50,000 from April 2026, and over £30,000 from April 2027 however the government has now confirmed that there will be a further reduction in the threshold 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. The general idea behind it is that some taxpayers will no longer simply report their income once a year on a Self-Assessment Tax Return and will instead be required to keep digital records and submit quarterly reports to HMRC as well as a final declaration at the end of the year.
The taxpayers affected 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.
HMRC have confirmed that they will soon be writing to taxpayers 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.
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.
As the scale of the change is simply too large to report in one bulletin, we will be writing to the clients we believe may be affected to discuss the next steps and would advise anyone who thinks they may be affected to get in touch with us as soon as possible.
With just over a year to go until live reports need to be submitted, it is important to make sure taxpayers fully understand their responsibilities and the process for keeping the required records.
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 therefore we will ensure changes around this area are covered in our bulletins.
If you are in any doubt whether you will be affected by the upcoming MTD ITSA regime, please speak to your usual contact or our Tax Director, Jenny Marks.
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