The Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) initiative has been delayed by two years, it has been revealed.
It will now be phased in from April 2026 for a smaller number of businesses, self-employed individuals, and landlords, rather than the previously announced launch date of April 2024.
How will this impact you?
From the new start date, MTD for ITSA will now only apply if you have gross property and/or business income exceeding £50,000.
You will still need to keep digital records and provide quarterly updates on your income and expenses to HMRC through MTD-compatible software.
If you have gross property and/or business income between £30,000 and £50,000, you will also need to comply with this from April 2027. However, all taxpayers will be able to join voluntarily.
Will this impact SMEs?
There will also be a review into the needs of smaller businesses originally due to use the system in 2024, particularly those under the £30,000 income threshold.
The review will consider how MTD for ITSA can be shaped to meet their requirements and the best way for them to fulfil their Income Tax obligations.
It will also guide HMRC’s approach for any further rollout of MTD for ITSA after April 2027.
What about partnerships?
MTD for ITSA will not be extended to general partnerships in 2025, as previously announced. However, the Government says it “remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy”.
Why has the implementation of MTD for ITSA been delayed?
Due to our current difficult economic environment, the delay aims to give self-employed workers, sole traders, and landlords more time to prepare for the changes.
A survey of Chartered Institute of Taxation (CIOT) and Association of Taxation Technicians (ATT) members found 97 per cent of the 322 professionals questioned said the top three reasons for concern are:
- Taxpayer awareness
- Taxpayers’ ability to comply
- Cost burden on clients.
You must use software that works with Making Tax Digital for Income Tax, which will allow you to:
- Create and store digital records of each of your business transactions
- Send updates of the totals of your business income and expenses every quarter
- Confirm end-of-period statements
The Government says that the shift to MTD for ITSA signifies a substantial change to taxpayers and HMRC on how self-employment and property income is reported.
Looking for advice on MTD for ITSA? Get in touch today.