Updated 19 December 2022
We’re now into the fourth year of the Government’s Making Tax Digital initiative. MTD’s goal has been ‘to make it easier for individuals and businesses to get their tax right and keep on top of their affairs’ while supporting HM Revenue & Customs’ ambition ‘to become one of the most digitally advanced tax administrations in the world’.
Since April 2019, businesses above the VAT threshold of £85,000 have been required by law to use MTD to meet their VAT obligations: setting up a digital tax account and filing quarterly returns online, using an accounting system or app that is integrated with HMRC’s digital gateway. From April 2022, this was expanded to all VAT registered businesses with turnover below £85,000.
The next stage of MTD is due in four years’ time and will affect sole traders and landlords.
MTD for Income Tax Self Assessment
The Government’s original timetable for introducing MTD for Income Tax from 2024 was modified in December 2022.
From 6 April 2026, MTD for Income Tax (also referred to as MTD for ITSA) will apply to businesses, self-employed individuals, and landlords with annual business or property income over £50,000.
From 6 April 2027, MTD for Income Tax will apply to those with annual business or property income over £30,000.
In December 2022, the Government said that it ‘will now review the needs of smaller businesses, and particularly those under the £30,000 threshold. This will look in detail at whether and how the MTD for ITSA service can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their income tax obligations.’
HMRC hasn’t announced when this will be extended to general partnerships or more complex partnerships (e.g. limited liability partnerships and those with corporate partners).
The following stage, MTD for Corporation Tax, also has no introduction date yet, but HMRC has said that it ‘will not [be mandated] before 2026’.
How it works
From 6 April 2026, businesses and landlords covered by MTD for Income Tax will need to send HMRC a quarterly summary of their business income and expenses using MTD-compatible software.
These filings will be due on or before:
- 5 August (for the period 6 April to 5 July)
- 5 November (for the period 6 July to 5 October)
- 5 February (for the period 6 October to 5 January)
- 5 May (for the period 6 January to 5 April)
Based on the information provided, HMRC will send an estimated tax calculation to help with budgeting for tax.
Following the four quarterly summaries, HMRC will also require two annual filings:
- An End Of Period Statement to finalise the income source of each business
- A ‘final declaration’ including other taxable income (e.g. savings and investment income) to finalise the tax liability
For now the 31 January income tax payment deadline will stay in place. We expect that when taxpayers and agents are used to the new systems and processes, HMRC will look to move payment deadlines to a quarterly payment regime i.e. 30 days after the quarterly submission is made.
Late submission fines will be based on a new points-based penalty regime, applying to MTD for VAT and MTD for Income Tax.
HMRC has said that it is working on “a time-bound communication plan” for MTD for Income Tax, so we look forward to passing on further details as we receive them.
How BKL can help sole traders
If you’re a sole trader with income of over £10,000, we want to provide cost-efficient support that suits you. In most cases this will mean helping you to get set up with MTD-ready cloud accounting software such as Xero, our recommended provider.
We are keen for you to embrace the digital experience to help you manage your business’s finances. A real-time cashflow position will mean you are better informed when it comes to making financial decisions.
We can also show you how to use reports and dashboards for insights into your business, such as why it seems to do well at a certain time of the year or how particular customers provide most of the income.
We appreciate that cloud accounting software isn’t for everyone, which is why we will also offer the ability to provide information via our client portal. This can be as straightforward as typing in information or uploading photos of receipts from your phone.
How BKL can help landlords
To assist you with the transition to MTD for Income Tax, we are pleased to have partnered with Hammock, whose property finance platform enables us to collect the required information directly from bank feeds.
Hammock has been designed for landlords as a hub for managing an entire property portfolio in one place.
On 27 July 2022 we hosted a webinar with Hammock, exploring how UK landlords should prepare for MTD. You can watch the recording here. While this predates the modified MTD timetable announced in December 2022, we expect the process to be the same when it applies from April 2026.
Feel free to contact us to find out more. You can get in touch via your usual BKL contact or use our enquiry form.