Making Tax Digital

Initially, MTD for Income Tax will apply only to individuals with self-employment and rental income (UK and overseas).

HMRC plan to extend MTD IT to general partnerships and LLPs.  No date has been announced for this yet.

HMRC have stated that trustees and personal representatives will not be affected.

HMRC’s current timetable gives three enrolment phases for MTD IT:

• 6 April 2026: individuals with combined gross income over £50,000
• 6 April 2027: individuals with combined gross income over £30,000
• 6 April 2028: individuals with combined gross income over £20,000

The threshold for inclusion in MTD IT is based on an individual’s combined gross income (not taxable profits) from the following sources:

• Self-employment
• Property rental businesses, both in the UK and overseas
• For private equity executives, Disguised Investment Management Fees (DIMF) or income based carry
• For beneficiaries of bare trusts or interest in possession (IIP) trusts, any property or trading income that they are entitled to (for bare trusts) or paid directly (for IIP trusts)

The threshold does not apply to income paid by other sources (e.g. employments, partnerships/LLPs, pensions or investments).

These MTD IT thresholds apply per person, not per business. For example, if you’re both a landlord and self-employed, your gross income from both sources will be combined to assess whether the above thresholds are met. Where property is owned jointly, only your share of the rental income will count towards your qualifying income.

The income threshold is assessed based on your most recent tax return, with the first phase being measured against your tax returns for the 2024/25 tax year. The sooner you file your 2024/25 tax return, the more time you’ll have to prepare for MTD IT.

Once you’re brought into the MTD IT regime, you’ll remain within it unless your income falls below the relevant threshold for three consecutive tax years. At that stage, you can request to be removed from MTD IT.

The following groups have been granted a deferral, meaning their obligation to comply with MTD has been delayed until at least April 2029 rather than permanently waived:

• Non-residents (and any other individuals who file the SA109 as part of their annual Tax Return):
  If you meet the £50,000 threshold but need to complete the pages titled Residence, remittance basis etc (Self Assessment SA109) within your annual tax return, your requirement to comply with MTD IT will be delayed from April 2026 to April 2027. In light of the recent changes to the taxation of non-UK domiciled individuals, the full contents of future Forms SA109 are currently unknown. However, we expect this deferral to apply to non-UK residents, individuals who are subject to split year treatment or claiming relief under double tax treaties, and individuals in their first four years of UK residence who are claiming the Foreign Income and Gains (FIG) relief.
• Ministers of religion
• Lloyd’s underwriters
• Recipients of the Married Couple’s Allowance or Blind Person’s Allowance

HMRC recognise that engaging with the digital and online world isn’t practical for everyone.

Exemption from MTD IT applies automatically to:

• Individuals without a National Insurance Number (NINO)

Other exemptions are available by applying to HMRC, subject to HMRC’s approval:

• Those who are exempt from MTD for VAT
• Taxpayers who have a Lasting Power of Attorney on behalf of someone which is actively being used
• Non-UK resident foreign entertainers and sportspersons: who don’t have another business that would be subject to MTD IT
• Taxpayers who HMRC can’t provide a digital service to

HMRC will also make case-by-case assessments of applications for exemption due to personal circumstances, such as:

• Physical or mental conditions which make it difficult or impossible to use digital systems
• Living in an area with poor internet connectivity
• Religious beliefs preventing the use of electronic communications or digital technology

In the earlier MTD for VAT enrolment period, only a small percentage of businesses were granted exemptions based on similar criteria. This suggests that exemptions will be reserved for genuinely exceptional circumstances, not for general reluctance to use technology.

If you believe any of the above exemptions may apply to you, get in touch with us. We can help guide you through the application process, once it becomes available.

If you fall within the scope of MTD IT, you’ll be required to submit a summary of income and expenses to HMRC four times per tax year. You can choose to report your income/expenses with reference to the calendar year or UK tax year.

The quarterly deadlines will be:

Each business (i.e. each sole trade, UK property business and overseas property business) will be reported separately to HMRC. For example, an individual who is self-employed and has a UK rental property business will submit eight updates quarterly in a year.

The above deadlines only apply to quarterly reporting of income and expenses. Tax liabilities will not be payable in the above instalments.

An end of year submission (similar to an annual tax return) is required by the standard self-assessment deadline (usually 31 January following the end of the tax year). This submission:

• Applies any necessary adjustments to the self-employment/rental income already reported via MTD IT
• Discloses any additional sources of income
• Claims all allowable deductions/reliefs
• Calculates the tax due and payable

You’ll be subject to a penalty points system, receiving a point each time you miss a submission deadline. Four points will incur a £200 penalty.

Points have a lifetime of two years, after which they will expire.

Once the penalty threshold has been met, points will be reset to zero if both of the following conditions are met:

1. All submission obligations are met in a 12-month period
2. All submissions required in the preceding 24 months are submitted in full (even if these submissions were initially late)

The tax liability calculated via the end of year submission will continue to be due by 31 January following the end of the tax year. In addition, payments on account for the following tax year may be due by 31 January and 31 July as usual.

For individuals within MTD IT, a new penalty system will apply to late payments of tax:

• 3% penalty charged on tax outstanding 15 days after the deadline
• 3% penalty charged on tax outstanding 30 days after the deadline
• A further penalty is charged at 10% per year for every day that tax remains outstanding more than 30 days after the deadline

In addition to the above, late payment interest will continue to accrue as usual.

The quarterly filing of rental and self-employment income should ensure annual tax returns can be completed as soon as possible after the end of the tax year. This will reduce the risk of penalties applying, and increase the time you have to plan for your upcoming tax liabilities.