MTD Update : Don't press pause

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20 February 2024

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MTD Update : Don't press pause, it could be the perfect time to learn how to run a more efficient business

HMRC’s ambition is to become one of the most digitally advance tax administrations in the world and the Government has started phasing in its landmark Making Tax Digital (MTD) initiative, which will see taxpayers move to a fully digital tax system.

Making Tax Digital

Making Tax Digital for Business (MTDfB) plans were announced in the 2015 Spring Budget and the government's 'Making Tax Easier' document published shortly thereafter, outlining details for the 'end of the tax return'. In these plans the Government set out its vision to modernise the UK's tax system, with digital tax accounts set to replace tax returns for ten million individuals and five million small businesses.

Following the successful implementation of Making Tax Digital (MTD) for VAT returns the next phase of Making Tax Digital (MTD) originally scheduled to come into force in April 2024, was extended to take the evolving economic landscape into account and to allow time for sole traders and landlords to adapt to the changes.

Revised timescales MTD for ITSA announced in the 2023 Autumn Statement

The 2023 Autumn Statement announced a package of design changes intended to simplify and improve MTD for ITSA when it is introduced in April 2026.

The next phase of Making Tax Digital (MTD) is currently scheduled to come into force in April 2026 and April 2027 for those with self-employed and/or property income of over £50,000 and £30,000 respectively and summarised as follows:

If you satisfy all of the conditions below, the new requirements will apply from April 2026:

Are an individual.
Already registered for Self-Assessment
Were self-employed or collecting property income before 6 April 2025.
Have a qualifying income of more than £50,000.

From April 2027, the following criteria will apply:

Are an individual.
Already registered for Self-Assessment.
Were self-employed or collecting property income before 6 April 2026.
Have a qualifying income of more than £30,000.

However, these dates will remain under review, as will any decision on further mandating of businesses and landlords with income below £30,000 and there remains the possibility that this population will be brought into MTD for ITSA at some point in the future.

A range of exemptions for Making Tax Digital for ITSA, exist, which you may be eligible depending upon your circumstances. More information is available on the Gov.UK site MTD for ITSA exemptions find out more here.

Although the government has said they remain committed to extending MTD for ITSA to general partnerships, this will not take place in April 2025 (as originally planned) but from a date yet to be confirmed. All other partnerships (e.g. those that have corporate partners and Limited Liability Partnerships) are also expecting to be required to join MTD at a future date (yet to be confirmed).

Basis Period reform and MTD ITSA – what you need to be aware of

Along with the upcoming changes for MTD ITSA, there is another key date to bear in mind. In addition to the forthcoming modifications for MTD ITSA, it’s important to note another significant date. The HMRC is scheduled to introduce the Basis Period Reform (BPR) on 6 April 2024. BPR affects sole traders/partnerships whose accounting periods do not coincide, meaning their fiscal year-end differs from the tax year-end of 5 April. The aim of BPR is to streamline tax returns and tax business earnings in the fiscal year they occur. Overlapping profits are a crucial factor and should be dealt with for the tax year concluding on 5 April 2025 to prevent potential losses.

Don’t press pause

Bearing all this in mind, rather than pressing pause on your MTD preparations, embracing digitalisation now may be the perfect time to help you learn how to run a more efficient business demystifying your accounting function and ready for the digital tax future!

How we can help

No matter your personal circumstances MTD will undoubtedly affect you in the long term.

Helping you prepare for MTD

Our aim is always to understand our clients’ businesses and needs. We can help clients implement the changes necessary to deal with the rigors of MTD, including recommending appropriate software.

Assisting you to maintain MTD compliant records

For those who do not have the resources necessary to deal with MTD, we can provide training and book-keeping support to help you fulfil your obligations.