Are you Ready for Making Tax Digital?

The implementation of Making Tax Digital for Income Tax (MTD for ITSA) has been on the horizon for a number of years, with the intention to ‘create a tax system fit for the digital age’.

And, after the successful roll out of Making Tax Digital for VAT in 2019, HM Revenue and Customs are now, despite a number of initial delays, pressing ahead with the digital reporting of income received by businesses and landlords. In this article Kate Cowell, Associate Tax Adviser, explains who meets the criteria for the changes, why it’s essential to understand if you’re affected and what steps you can take now to make sure you’re ready.

Who will it affect?

MTD for ITSA will apply to all self-employed individuals and landlords with gross ‘Qualifying Income’ above the relevant threshold if:

• you’re an individual registered for Self -Assessment
• you get income from self-employment or property, or both
• your qualifying income is more than £50,000 (reducing to £30,000 for 2027 – see below)

What counts as Qualifying Income?

Qualifying income is assessed on a combined basis, so if you have any of the following sources of income these will be added together:

• Rental income, before expenses (including jointly let properties)
• Self-Employment (turnover)
• Disguised investment management fees or income based carried interest
• Trust income: If you are a beneficiary of a bare trust or a direct beneficiary (income bypasses the trustees) of an interest in possession trust, that receives property or trading income.

For example, if you’re in receipt of income from a joint property and your half share of the rent received is £12,000, and you also receive gross self-employment income of £40,000 – your Qualifying Income would be £52,000.

Partnership income is not currently within the scope of MTD for ITSA, but this will be introduced at a later date.

What does this mean for those affected?

The reporting of your income via Making Tax Digital for Income Tax will become mandatory in phases, starting from 6 April 2026. The initial phase will introduce individuals who have qualifying income of more than £50,000, followed by individuals whose qualifying income is more than £30,000 from 6 April 2027. The government’s intention is to reduce this threshold to £20,000 in the future. Qualifying income will initially be determined by the income reported on your 2024/25 Tax Return. So, if your qualifying income is £50,000 or over than you must start using MTD for ITSA by 6 April 2026.

How will my income be reported to HMRC?

With MTD a quarterly update of your income and expenses will need to be digitally submitted to HMRC. Instead of the previous annual only submissions. The quarterly submissions will be on a cumulative basis, with the deadline for each being just over a month after the reporting period. A separate submission will be required for each trade or property business. So, for example if you are self-employed and have rental income, eight submissions will be required each year.

At the end of the tax year, after the fourth and final quarterly submission is made, a ‘Digital Tax Return’ will be submitted. The Digital Tax Return is similar to the current Self-Assessment Tax Return and the submission deadline will continue to be the 31 January following the tax year. There are no changes to the tax payment due dates, which will remain at 31 January following the tax year along with payments on account being due in January and July.

What do I need to do now?

Whilst the changes are not coming in just yet, it’s important that you’re prepared so that you can meet the reporting requirements of MTD. Your focus at this stage should be on having up to date digital records. So, if you’re not already doing this, now would be a good time to assess the options available to you to implement and maintain these records.

Everyone has different needs dependent on the complexity and frequency of their income and expenses. But we can advise on a variety of record keeping solutions; for some it may be preparing a simple spreadsheet. For others it might be helping to choose a bespoke platform to support you as self-employed or as a landlord.

Either way we’re here to help. Please give Kate or one of the team a call on 0330 058 6559 or email hello@scruttonbland.co.uk