You may have heard, or remember from the 2024 Autumn Budget, that HMRC are implementing Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)
This will be relevant if you are a Sole Trader and/or a Landlord with qualifying income.
This requires businesses and landlords to maintain digital records and update HMRC each calendar quarter using compatible software. This will apply as follows:
- From April 2026, for those with qualifying income over £50,000
- From April 2027, for those with qualifying income over £30,000
Your qualifying income is the total gross sales/rental income that you receive in a tax year from self-employment and property, before the deduction of any expenses.
What needs to be reported?
A report of the business’ trading or property income, allowable expenditure and claims for allowances or reliefs against such income currently must be submitted in relation to each tax year.
This must be provided quarterly on fixed dates.
Separate quarterly updates will be required for each business. For example, an individual operating as a sole trader who also has a UK property business would need to submit eight quarterly reports a year.
Other issues to consider
Your Self Assessment tax return for 2024/25 will determine whether you fall within the regime for the first year, based on whether your qualifying income is more than £50,000.
HMRC will write to you and confirm that you must start using MTD for ITSA by 6 April 2026.
You, or your agent, must then sign up for MTD for ITSA and use MTD compliant software.
The above process will then be applied for the 2025/26 tax year, when the threshold for qualifying income drops to £30,000.
Summary
You will receive letters from shortly from HMRC informing you about the upcoming changes.
We will be in touch directly with you over the coming months and will also use the recently submitted 2023/24 tax returns and upcoming 2024/25 tax returns to help you to assess whether MTD for ITSA is likely to apply to you, and what steps you need to take to comply with these new requirements.
If you have any questions, please do not hesitate to contact us on 01494 358853.