The next stage of the Making Tax Digital (MTD) initiative is almost upon us.
MTD for Income Tax (MTD IT) requires businesses and individuals to maintain digital records and submit quarterly updates using compatible software.
This HMRC initiative began with MTD for VAT, which has applied to VAT-registered businesses since April 2019.
The initiative is now being extended to self-employed individuals and landlords under MTD IT, who will soon be required to report their income to HM Revenue & Customs once per quarter.
Here’s what you need to know about the MTD IT key dates and changes.
What are the key dates for transition?
The key deadlines for implementing MTD IT are:
- April 2026 – Self-employed individuals and landlords with gross annual business or property income over £50,000 will need to comply.
- April 2027 – The threshold lowers to include those with gross annual business or property income over £30,000.
Individuals with gross annual income over £20,000 will eventually be required to comply with MTD IT within this parliamentary session (2029), although a specific timeline has yet to be announced.
Move to quarterly reporting
Under MTD IT, taxpayers will be required to send quarterly updates of income and expenditure to HMRC.
These updates will be required for the standard quarters, irrespective of a business’s accounting period.
The deadlines for quarterly updates (following the end of the relevant quarter) will be:
- 7 August
- 7 November
- 7 February
- 7 May.
The deadline of 7th of the relevant month has been aligned with VAT MTD reporting. You can submit updates up to 10 days early if you know that the information for the quarter is complete.
Compatible software for MTD
To transition to MTD IT, you will need to obtain software that is compatible with HMRC’s reporting requirements.
HMRC requires you to use MTD-compatible software to:
- Create and store digital records of your business income and expenses
- Send quarterly updates
- Submit your tax return by 31 January after the end of the tax year
- Receive information from HMRC.
Some individuals may be able to use compliant bridging software to report information to HMRC. However, it is strongly encouraged to use cloud accounting software to support these new tax compliance requirements.
What you need to do next
Even if the deadline for MTD IT seems far away, it is vital to begin preparing now to ensure a smooth transition by acquiring the right accounting solution for you.
You will need to make sure that you fully understand how to use the new software and digital systems.
You should also keep up to date with HMRC announcements and guidelines regarding MTD IT to avoid missing key changes.
Our team of experienced accountants and tax advisers, as well as our dedicated business innovation team, are here to support you with the transition to MTD IT.
To get started with your transition to MTD IT, please contact us.