Making Tax Digital for Income Tax (MTD IT) is a major change in the way self-employed individuals and landlords in the UK manage and report their taxes. It’s part of the government’s initiative to modernise the tax system, making it more efficient and less error-prone.
If you’re self-employed or a landlord, this change will likely affect how you record your income and submit your tax returns. Let’s explore what MTD IT is, how it will impact you, and what steps you need to take to ensure compliance.
What is MTD IT?
MTD IT stands for Making Tax Digital for Income Tax. It’s an extension of the government’s Making Tax Digital (MTD) initiative, which already applies to VAT.
MTD IT focuses on streamlining the process of reporting income tax for:
•Self-employed individuals.
•Landlords
Under MTD IT, you’ll need to:
1. Keep digital records of your income and expenses and bank transactions relating to your business.
2. Submit quarterly updates to HMRC through MTD-compatible software.
3. File a Final Declaration to confirm your annual income and tax obligations. This will include any other taxable income that you have received in the tax year.
Who does MTD IT apply to?
MTD IT will apply to:
•Self-employed individuals (sole traders) and landlords with an annual business or property income exceeding £50,000 starting from April 2026.
•Those with annual income between £30,000 and £50,000 starting from April 2027.
HMRC is still consulting on how MTD IT will apply to individuals earning below £30,000 annually, but it’s important to stay informed about future changes.
I am a partner in a partnership, does MTD IT apply to me?
No, it only applies to self-employed individuals and landlords. At the current time, HMRC have not announced when MTD IT will apply to partnerships.
I have a Limited company, does MTD IT apply to me?
No, it only applies to self-employed individuals and landlords. At the current time, HMRC have not announced when MTD IT will apply to Limited companies.
Is the £50,000/£30,000 my turnover or profit?
The £50,000/£30,000 limits are your soletrader turnover/sales income or your rental income before taking into accounts any expenses.
Eg if your sole trader sales are £55,000 and you have expenses of £12,000 giving you a profit of £43,000 you will fall under MTD IT as your sales are over £50,000.
How will HMRC know that my income is over £50,000?
HMRC will look at the income filed on your 2024/25 tax return to see if you fall under MTD IT from April 2026. Going forward, it will then look at subsequent tax returns to see if you need to join MTD IT from April 2027 onwards.
How will MTD IT affect you?
1.Digital Record-Keeping
If you’re used to keeping paper records or spreadsheets, you’ll need to switch to MTD-compatible software to maintain your records digitally or use bridging software.
2.Quarterly Reporting
Instead of filing a single Self Assessment tax return once a year, you’ll submit four quarterly updates to HMRC. These updates provide a snapshot of your income and expenses throughout the year.
3.End of Year Submissions
You’ll still need to finalise your accounts at the end of the year, but the process will be streamlined through digital tools.
4.Increased Transparency
With regular updates, you’ll have a clearer picture of your tax obligations throughout the year, reducing the risk of surprises at year-end.
What do you need to do to prepare for MTD IT?
1.Determine if MTD IT applies to you
Check your annual income from self-employment or property to see when you’ll need to comply with MTD IT.
2.Choose MTD-compatible software
Popular options like QuickBooks, Xero, and FreeAgent are all MTD-compatible. These tools will help you maintain digital records and submit quarterly updates seamlessly.
3.Organise your records
Ensure your income and expense records are accurate and up to date. If you’ve been relying on paper receipts, it’s time to transition to a digital system.
4.Learn the new process
Familiarise yourself with how to submit quarterly updates and the Final Declaration.
5.Seek professional advice
Navigating MTD IT can be complex, especially if you’re new to digital accounting. A trusted accountant can guide you through the transition and ensure compliance.
What happens if I don’t comply with MTD IT?
Failure to comply with MTD IT requirements may result in penalties from HMRC. These could include fines for late submissions or non-compliance with digital record-keeping rules.
Will I still need to file a Self Assessment tax return?
MTD IT replaces the traditional annual Self Assessment tax return. Instead, you’ll submit quarterly updates and a Final Declaration through your MTD-compatible software. The final declaration will include details of any other taxable income that you have received in the tax year.
Will I need to pay my tax quarterly?
No, at this current time, HMRC have no plans to change the system of collecting tax and tax payments will still be due in January and July in the year following the end of the tax year.
How Gloucestersphere Accountants can help
At Gloucestersphere Accountants, we understand the challenges that MTD IT presents for self-employed individuals and landlords. Our goal is to make the transition as smooth and stress-free as possible.
Here’s how we can support you:
1.Expert Guidance
We’ll help you understand how MTD IT affects your specific situation and create a plan to ensure compliance.
2.Software Setup and Training
Choosing and setting up MTD-compatible software can be overwhelming. We’ll recommend the best option for your needs, handle the setup, and provide training to get you up to speed.
3.Quarterly Reporting Support
We’ll assist with preparing and submitting your quarterly updates to HMRC, ensuring accuracy and timeliness.
4.Year-End Submissions
We’ll manage your year-end submissions so you can focus on running your business.
5.Ongoing Support
We’re here to answer your questions, troubleshoot issues, and provide peace of mind as you navigate MTD IT.
Get Ready for MTD IT with Gloucestersphere Accountants
Making Tax Digital for Income Tax is a significant change, but you don’t have to face it alone. At Gloucestersphere Accountants, we’re experts in helping self-employed individuals and landlords transition to MTD seamlessly.
Still Have questions? We’re here to help!
At Gloucestersphere Accountants, we specialise in helping self-employed individuals and landlords prepare for MTD IT. Whether you need help setting up software or understanding your obligations, we’re just a call away.
Contact us today for a free consultation and let’s get your business ready for the future of tax reporting.
