Making Tax Digital has been spoken about for a number of years now, after first coming in for VAT, development to release it for income tax has been slow. But what exactly is MTD and what can we expect for the future?
MTD is part of the governments Tax Administration Strategy which is aimed at reducing the tax gap and reducing administrative burden.
For VAT, the system has been in place for a number of years now and requires companies that are registered for VAT to keep digital records and submitting quarterly VAT returns. Your accountant can help you determine if you need to register for VAT and how to set up for MTD for VAT if required.
But changes are coming in the form of MTD for Income Tax Self Assessment (or ITSA for short). This will affect certain individuals. Launching in April 2026, MTD for ITSA will initially cover only those individuals with qualifying income of £50,000 or more. This will reduce to those with qualifying income of £30,000 or more from April 2027 onwards. But what is qualifying income for MTD?
Qualifying income is income from self-employment and from property. So, for now, it will not include income from salaries, dividends, pensions, bank interest etc. Your qualifying income is the gross income received from self employment and property, not the net income after deducting expenses and applying any tax relief. If income is from a property which is jointly owned, for example two people each own 50%, then it would only be your share of the income which would be counted as qualifying income for you.
So, for example, a person with self-employment income of £35,000 and property income of £20,000 would have a total qualifying income of £55,000 and therefore need to register for MTD for ITSA by April 2026. However, if that £20,000 property income were split between two people, they would have until April 2027 to register.
Those who are registered will then be required to submit a set of quarterly submissions followed by a final submission at the end of the year. Any taxes due would still only need to be paid by 31st January following the end of the tax year in question.
HMRC are confident MTD for ITSA will launch on its current schedule despite the project seeing a number of delays, so if you believe you are impacted, or are not sure, please contact your accountant who can assist. But what else can we expect going forwards?
One thing we know is that HMRC have undertaken a consultation on MTD for Corporation Tax, though there is unlikely to be a mandate for its usage before 2026. Additionally, we also cannot rule out any changes to the qualifying income requirements of MTD for ITSA, though nothing is expected to change for the foreseeable future.
The best thing you can do is be ready for MTD for ITSA and make sure you are registered before the April 2026 or April 2027 deadlines, if you meet the criteria for either. It is becoming more and more important to keep the right records and have access to the right software which is compatible and compliant with MTD.
At PayStream we use professional accounting software which will help make MTD compliance easier and more manageable. Likewise, having an accountant help guide you through the process, meet the deadlines for submissions and avoid non compliance is key.
If you need any assistance with MTD for VAT or ITSA or understanding if you might meet the criteria to register for either of those, please don’t hesitate to contact us.
