It’s finally happening – Making Tax Digital for Income Tax (MTD IT) is going live. Letters have been sent by HMRC to taxpayers who they believe will be within the scope for MTD IT which will be phased in from April 2026.
With the original intention for MTD IT to be phased in from April 2024, many advisors and taxpayers were skeptical that it really would happen. However, with HMRC’s move to issue letters to taxpayers there is greater confidence that April 2026 will be the start of MTD IT.
Who?
MTD IT will be mandatory in April 2026 for landlords and self-employed individuals with gross qualifying income of more than £50,000 from all sources. Meaning, someone who is both a landlord and self-employed will need to combine their income sources to determine whether they meet this threshold.
HMRC will then phase in more taxpayers by reducing the threshold to £30,000 from April 2027 and £20,000 from April 2028.
MTD IT does not yet include income from partnerships but there is an intention by HMRC to bring partners into the scope in the future.
There are some minimal exemptions to who will qualify and these are, in the majority, determined by the other income or reliefs that the taxpayers claim on their annual tax returns as HMRC’s digital systems are not yet capable of dealing with them.
What?
So what do these individuals need to do?
MTD IT will require the taxpayers to keep digital accounting records, filing income and expenses updated to HMRC every quarter and submit a final end of year summary.
The introduction of MTD IT will mean that taxpayers who are used to only filing one report (their tax return) at the end of the year will now have to file five reports. However, separate forms must be filed for each self-employment that an individual has as well as separate forms for their total property rents.
Therefore, taxpayers who are self employed who also rent out a property will have to file nine reports to HMRC (four for the self employment, four for the rental and one final summary).
Why?
HMRC are modernising their digital systems and they want real time information from clients to reduce error and to help close the tax gap. By keeping quarterly records HMRC are also intending for this to help taxpayers manage their liabilities more efficiently as both they (and HMRC) will be keeping track of their income and expenses on a regular basis.
If MTD IT is going to apply to you, we will be in touch to discuss what’s needed in more detail. We can also talk through the options for record keeping, and quarterly filing, so you can decide how much input you would like us to have, and how much you want to tackle yourself. We look forward to working with you to find the MTD IT solution that’s right for you.