What is MTD for Income tax?
MTD for Income Tax is a change to the way businesses and individuals keep records and report to HMRC. It has been delayed several times but is scheduled to begin April 2026 for many sole trades and landlords.
Why is MTD being introduced?
The Government’s aim is to improve record keeping, reduce errors as well as the tax gap. The tax gap represents the difference between the amount of tax that should, in theory, be collected by HMRC and what is actually collected. For the 2022 to 2023 period, the UK tax gap was estimated to be 4.8% of total theoretical tax liabilities, amounting to £39.8 billion. This means that HMRC successfully collected 95.2% of all tax due.
What does MTD involve?
Three key components:
- Digital Records: Businesses will need to maintain digital records of their transactions.
- Quarterly Updates: Businesses must submit updates to HMRC every quarter, providing a summary of their income and expenses.
- Year-End Declaration: At the end of the tax year, businesses will need to submit a final declaration to confirm that the information provided is complete and accurate. All data transfers to meet these requirements must be done using digital links, ensuring a seamless and accurate flow of information.
Who does MTD apply to?
Making Tax Digital (MTD) will apply to self-employed individuals and landlords who’s gross ‘qualifying income’ exceeds the relevant threshold. This income includes their combined earnings from trading and property, measured before any expenses are deducted. MTD is planned to be extended to taxpayers with qualifying income between £20,000 and £30,000, limited companies, partnerships, and limited liability partnerships (LLPs) in the future. However, as of now, no specific timescales have been proposed.
During the Autumn Budget 2024, the government announced plans to extend Making Tax Digital (MTD) to taxpayers with qualifying income between £20,000 and £30,000., limited companies & partnerships. However, the exact date for this has not yet been determined.
Will due dates for paying tax change under MTD?
Payment dates for tax will remain the same as they are under the current Self-Assessment system. This continuity helps ensure that businesses and individuals can transition to MTD without needing to adjust their tax payment schedules.
When does it apply from?
The timeline for complying with Making Tax Digital (MTD) depends on your qualifying income: Over £50,000: You will need to comply with MTD from April 2026. Over £30,000: You will need to comply with MTD from April 2027. MTD to taxpayers with qualifying income over £20,000 the exact date is unknown.
Action Needed?
No immediate action is needed and there’s no need to panic. As the countdown continues, we will offer a service to prepare or support MTD reporting and advise on your best software choice, most existing software will be suitable. If you have any immediate concerns, please email [email protected] and we will discuss.
