Making Tax Digital for Income Tax
HMRC’s ‘Making Tax Digital’ programme is being phased in over a number of years, following the announcement in 2015 that it was the government’s intention to eventually abolish the Self Assessment tax return.
Making Tax Digital for VAT was the first element of the programme to be rolled out, beginning in April 2019. Most VAT registered businesses now come within this regime as all VAT registered businesses were required to comply with the Making Tax Digital for VAT rules from April 2022 at the latest unless exempt.
Making Tax Digital for Income Tax is due to be introduced in phases beginning in April 2026 and will eventually affect self-employed individuals and individuals receiving property income with annual gross income of £30,000 or more. HMRC are still considering to what extent those with annual gross income of between £10,000 and £30,000 will need to comply with the MTD for Income Tax rules in due course.
The new system
Making Tax Digital (MTD) for Income Tax is a new system for recording and reporting income and expenses if you are self-employed and/or receive property income. When you come within scope of the MTD for Income Tax regime you will be required to:
- Keep your records in digital format. This means that most people within the scope of MTD will either have to use specific accounting software packages or apps or maintain spreadsheets to record their business transactions. Many software companies are still developing products to meet the MTD requirements. Products currently on the market are listed on GOV.UK. HMRC will not be providing free software, but they expect some free products to be available from commercial software providers in due course. For more information see our ‘digital records’ section below.
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Submit quarterly updates to HMRC to declare business/property income and expenses for the three-month period covered by the update. The intention is for the reports to be automatically generated by the record keeping system so this should not be an onerous process. Updates will be due for the following periods each tax year:
6 April to 5 July
6 July to 5 October
6 October to 5 January
6 January to 5 April
The updates will be due for submission within one month of the quarter end.
It is possible to elect for the update periods to tie in with a month end if this is more convenient, so they become:
1 April to 30 June
1 July to 30 September
1 October to 31 December
1 January to 31 March
The due date for the submissions remains the same.
Bridging software should also be available in due course which will enable those using spreadsheets for record keeping to link to HMRCs computer systems and submit the required quarterly update information.
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Submit an ‘end of period statement’ to confirm the final taxable profit for the accounting period for the business, and provide details of any other taxable income in the tax year instead of completing a Self Assessment tax return.
Your MTD start date
The government intends that Making Tax Digital (MTD) for Income Tax will eventually apply to most people who are self-employed and/or receive property income.
It was due to become mandatory for those with annual gross income of £10,000 or more from April 2024 but the government announced in December 2022 that they would be allowing more time for both businesses/landlords and HMRC to get prepared for the introduction of the new programme.
Therefore the timetable for mandatory compliance with the MTD rules is now as follows:
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From April 2026 for those with annual gross income of over £50,000
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From April 2027 for those with annual gross income of between £30,000 and £50,000
If you are self-employed and receive property income, the gross annual income figure above applies to total gross income from both sources.
Your gross income is the income from your self-employment or property letting activities. If any deductions are made from the income before you receive it, your gross income amount is the amount before any deductions are made.
For example, Yani is self-employed as a cycle delivery rider. He receives regular income payments from the platform he works through, after they deduct their charges. In March 2023 £1,300 was paid into his bank account. This was after fees of £200 were deducted by the platform before he was paid. His actual earnings were as follows:
Earnings £1,500
Platform fees -£ 200
Received in bank £1,300
Yani’s gross income is £1,500. The platform fees of £200 are a business expense to be claimed in his self-employed accounts in due course.
Martha rents out a property in the UK. The property is managed by letting agents on her behalf. Each month she receives a payment from the agents, which is the rental income, after the agents have deducted their fees. In March 2023 Martha received a payment of £820, as follows:
Rent paid by tenant £1,000
Letting agent fees -£ 180
Received in bank £ 820
Martha’s gross income is £1,000. The letting agent fees of £180 are an expense of the letting to be claimed in her property rental accounts in due course.
The government have yet to announce how MTD will apply to those who have annual gross income of less than £30,000 and when it will become mandatory for this group of taxpayers to comply. This information is expected later in 2023, and we will update this page when it becomes available.
It will be possible to join MTD voluntarily before you are mandated to do so.
The government have also confirmed that MTD will become mandatory for partnerships in due course, although it is not yet known when this will now be. Originally it was due to be April 2025 but this has now been put back indefinitely for the moment.
Exemption from MTD
It will be possible to apply for exemption from Making Tax Digital (MTD) provided you have good reason for not being able to comply with it, for example you have an unreliable broadband connection, disability prevents you from using computers, you live in a remote location with poor broadband access, etc.
While your application for exemption from MTD is being considered by HMRC you are not required to comply with the MTD rules.
The process for claiming exemption has not yet been confirmed by HMRC. We will update this page once more information becomes available.
Digital records
One key element of Making Tax Digital (MTD) for income tax is that there is a legal requirement to maintain business records digitally. This means that some kind of electronic record keeping system will need to be used. This could be an accounting software package, a spreadsheet-based system or maybe via an ‘app’ on a smartphone.
HMRC are not producing their own software or app to enable digital records to be maintained and therefore it will be necessary to choose or purchase a system you feel is suitable for your business and within your budget.
HMRC maintains a list of products that comply with the digital record keeping legislation on GOV.UK.
We look at factors to consider when changing to a digital record keeping system, and in particular when choosing new software on our page ‘What are digital records?’ in the Making Tax Digital for VAT section.
Help with MTD for Income Tax from HMRC
If you will need some help to be able to meet the MTD rules, HMRC will be offering support and assistance, however it is not yet clear how this will be provided. We will update this page when more information becomes available.
