Heads Up! HMRC Making Tax Digital Changes Are Coming – Here’s What You Need to Know

Big news for self-employed individuals and landlords! HMRC is rolling out significant changes under its Making Tax Digital (MTD) initiative, and it’s crucial to understand how these changes will affect you. This isn’t just a minor tweak; it’s a fundamental shift in how income tax is reported. Let’s break down what’s happening, who it impacts, and when.

What Exactly is Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)?
For those unfamiliar, MTD for ITSA is a move towards digitalizing the way self-employed individuals and landlords keep records and report their income tax. Instead of the traditional annual self-assessment return, MTD requires you to:

• Keep digital records of your business income and expenses. Forget the shoebox full of receipts!
• Use MTD-compatible software to manage these digital records.
• Submit quarterly updates of your income and expenses to HMRC through this software.
• Submit a final declaration at the end of the tax year.

The Phased Rollout: When Will It Affect You?
HMRC is implementing these changes gradually based on your annual gross income from self-employment and property letting before any deductions. Here’s the timeline you need to mark in your calendar:

• Starting April 6, 2026: If your qualifying income is over £50,000 per year, you’ll be the first to come under the MTD for ITSA rules. HMRC will be looking at your Self-Assessment tax return for the 2024/25 tax year to identify those who fall into this category.
• Starting April 6, 2027: This is the date for those with a qualifying income over £30,000 per year (but not exceeding £50,000). Expect HMRC to assess this based on your 2025/26 tax year returns.
• Starting April 6, 2028: If your qualifying income is over £20,000 per year (but not exceeding £30,000), you’ll need to comply with MTD from this date. This will likely be determined by your 2026/27 tax year returns.

Key Takeaways for Everyone:

• It’s About Gross Income: The thresholds are based on your total earnings from self-employment and property letting before any deductions. So, even if your taxable profit is lower, your gross income determines when MTD applies to you.
• Digital is the Way Forward: Once MTD becomes mandatory for you, you’ll need to embrace digital record-keeping and use compatible software. This might require an adjustment in your current processes.
• Quarterly Reporting is the New Norm: Say goodbye to just one annual tax return. MTD brings in the requirement for quarterly updates, providing HMRC with a more real-time view of your income and expenses.
• The Final Declaration Still Exists: While you’ll be submitting quarterly updates, you’ll still need to submit a final declaration at the end of the tax year to finalize your tax obligations.
• Planning is Key: Regardless of when MTD kicks in for you, it’s wise to start thinking about it now. Explore MTD-compatible software options and consider how you’ll manage your digital records.
• What About Below £20,000? The government has stated its intention to explore how digitalization can benefit those with income below £20,000, but there are no firm dates or requirements announced yet.

Don’t Get Caught Off Guard!
These changes are significant and will impact a large number of people. Keep an eye out for further updates from HMRC and start preparing for the shift to digital record-keeping and quarterly reporting. Understanding the timeline and requirements now will help ensure a smoother transition when MTD for ITSA becomes mandatory for you.

Have questions about MTD? Share them in the comments below!