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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

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 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. Making Tax Digital for income tax is now due to be introduced in phases, beginning in April 2026.

Content on this page:

Scope

Making Tax Digital (MTD) for income tax will eventually affect self-employed individuals and individuals receiving property income with annual gross income of £30,000 or more from their self-employment and property letting. There are some exceptions, which we discuss below. HMRC are still considering to what extent those with annual gross income of between £10,000 and £30,000 from these sources will need to comply with MTD for income tax.

Partnerships

The government have confirmed that MTD will become mandatory for partnerships in due course, but it is not yet known when this will be.

Digital requirements

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:

1. Keep digital records

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 have said they 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.

2. Submit quarterly updates

You will need to submit quarterly updates to HMRC to declare business/property income and expenses for the 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. The periods will be cumulative, so updates will be due for the following periods each tax year:

  1. 6 April to 5 July
  2. 6 April to 5 October
  3. 6 April to 5 January
  4. 6 April to 5 April

The updates will need to be submitted within one month of the quarter end. Each submission effectively supersedes the previous one.

It is possible to elect for the update periods to tie in with a month end, if this is more convenient. In this case, the periods become:

  1. 1 April to 30 June
  2. 1 April to 30 September
  3. 1 April to 31 December
  4. 1 April to 31 March

However, the due dates for the submissions do not change.

3. Submit a final declaration

Provide details of the final taxable profit for the accounting period of the business, and any other taxable income in the tax year, before making a final declaration to complete the process 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 originally due to become mandatory from April 2024 for those with annual gross income of £10,000 or more from self-employment and property letting. However, the government announced in December 2022 that they would be allowing more time for both businesses and landlords and HMRC to get prepared for the introduction of the new programme.

Therefore, the timetable for compulsory compliance with the MTD rules is now as follows:

  • From April 2026, for those with annual gross income of over £50,000 from self-employment and property letting
  • From April 2027, for those with annual gross income of between £30,000 and £50,000 from self-employment and property letting

At this stage, MTD will not apply to those who have annual gross income of less than £30,000. However, MTD may be extended to those with a lower turnover in due course, as the government have confirmed the threshold level will be kept under review.

If you are self-employed and receive property income, the gross annual income figure above applies to total gross income from both sources.

When working out your gross income from self-employment or property letting activities, remember that if any deductions are made from the income before you receive it, your gross income amount is the amount before the deductions are made. To see how this works, see the examples below.

Example: Yani

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.

Example: Martha

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. 

It will be possible to join MTD voluntarily before you are mandated to do so.

Exemption

You will not be required to comply with Making Tax Digital (MTD) for income tax in the following circumstances:

  1. You do not have a UK National Insurance number (although you will be expected to comply with MTD if you are in scope if you eventually obtain an NI number).
  2. You are a foster carer or shared lives carer  and your only income is qualifying care income.

It will also be possible to apply for exemption from Making Tax Digital (MTD) if you are digitally excluded – 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

A 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. For example, this could be an accounting software package, a spreadsheet-based system, or via an ‘app’ on a smartphone.

HMRC have said they are not producing their own software or app to enable digital records to be maintained, so 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 recordkeeping requirements on GOV.UK.

If you do not keep your records digitally now you need to decide how you are going to change to a digital system. This could depend on several factors such as:

  • How experienced or confident are you when using IT/software?
  • Do you have access to the internet? If so, how reliable is your broadband service?
  • Do you have anyone to ask if you need any help? If so, are they already using a particular product in their own business that they can recommend to you?
  • What kind of budget do you have (if any)?
  • What hardware you are most comfortable using (e.g. laptop, tablet, phone etc)? Does it have the necessary system requirements to run the software?
  • Is there anywhere you can get some training? (YouTube videos, chat forums, local IT support groups, local charities, etc.)

Software

There is no record-keeping software available from HMRC, so it will be necessary to use a commercial system you feel is suitable for your business and within your budget. The cost of the software packages varies between suppliers. Some suppliers offer free products, but this may only be for a limited time or may only be for the simplest version of their product. Therefore, you must be careful when reviewing potential software products to try to ensure you get the most suitable product for your circumstances.

There are lots of different products on the market so it might be difficult to choose one that you think will work for you, both now and in the future. Some things to consider when choosing a product might be:

  • Are you clear about the costs/charges associated with the product, if any?
  • Does the product offer customer support if you have a problem/get stuck? If so, how is this delivered – e.g. email, webchat, phone? Are there any additional charges if you need support?
  • Can you transfer all your data from the product to a new product easily if you decide to change systems? Does the system back up the data automatically or will you need to do this yourself regularly?
  • Can you print reports from the system easily? Can you download/save data or reports etc easily from the system?
  • Does it meet any accessibility need you may have?
  • Do you need the product to have a Welsh translation?
  • Do you want a system that links to your bank account and automatically downloads transactions?
  • Do you have any particular requirements in terms of functionality of the product?
  • How many transactions do you have each quarter? Is there a limit on the number of transactions (for example, per month or per quarter) the software will allow? Do you anticipate the number of transactions to increase as your business grows?
  • Is the product useful for any other aspect of your business?
  • Is the product fully compatible with your hardware/other software?
  • Are software updates done automatically or do you (as the user) need to regularly check for programme updates?

Bridging software

Bridging software should also be available in due course. This software will enable those using spreadsheets for record-keeping to link to HMRC’s computer systems and submit the required quarterly update information.

Help from HMRC

If you will need some help to be able to meet the MTD rules, HMRC will be offering support and assistance, but it is not yet clear how this will be provided. We will update this page when more information becomes available.

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