MTD update
In 2019 the government began to roll out an initiative to make the UK’s tax system more efficient. The idea was to maximise tax revenue, streamline the tax system to make it more efficient, and reduce the number of errors being made on tax returns.
The first phase applied to VAT returns, which must now be submitted digitally every quarter using MTD-compatible software. But since then, deadlines for the other taxes have been pushed back. Here, we provide a status update on Making Tax Digital and advise on what to expect next.
MTD: What has happened so far?
VAT-registered businesses must now keep digital records of their VAT transactions and use MTD-compatible software to submit their VAT returns on a quarterly basis. The rules apply to sole traders, partnerships and limited companies alike.
MTD for Income Tax
Making Tax Digital for Income Tax has been delayed several times and is now expected to come into effect from April 2026. HMRC has been writing to taxpayers whom it thinks will be affected to confirm how to prepare for the change.
Business and property income from the 2024/25 tax year will determine whether you are required to comply with MTD from April 2026. Those with an accountant should therefore ensure they provide their tax information for the period in plenty of time.
For sole traders and landlords, those with a combined income of £50,000 and above from self-employment and property will need to comply with MTD for Income Tax from April 2026. Those with a combined income of £30,000 and above from self-employment and property will need to comply from April 2027.
MTD for Income Tax for partnerships currently has no start date, and those who are digitally excluded or have no National Insurance number are exempt.
Submission guidance
Taxpayers will be required to submit quarterly updates in August, November, February and May. These will be summaries of income and expenditure and are cumulative. That means businesses can amend submissions throughout the year instead of resubmitting previous quarterly updates. If you have more than one business, experts suggest it is preferable to make separate submissions for each.
Throughout the year, taxpayers will be expected to keep their digital records up to date and provide accurate submissions. After the fourth quarterly update has been submitted, your MTD-compliant software will show your self-employment and property income and expenses for the year. You’ll then be required to make any necessary adjustments and submit your Self-Assessment tax return. It’s worth noting that the quarterly submissions don’t replace the Self-Assessment; this will still need to be filed.
Tax payments
Although the way Income Tax is reported will be changing, the current payment system is expected to remain. Taxpayers will still need to make a payment on account and balancing payment by 31 January/31 July.
If you need help with MTD compliance or preparing and filing your Self Assessment tax return, contact a reputable accountant today.
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