In February 2024 important amendments to the Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) rules became law. How will the changes affect your business when MTD ITSA becomes mandatory?
MTD ITSA start date
In December 2022 the government delayed the start of Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) for the second time as it was clear that HMRC would not be ready in time. It also proposed a phased start date. This was recently confirmed in the Finance Act 2024.
If you’re a sole trader or landlord and your business turnover is greater than £50,000 for 2025/26, you’ll be required to start keeping digital records from April 2026 that are compliant with the MTD ITSA regulations. Your first MTD ITSA report will be either for the quarter ended 5 July or 30 June 2026 depending on whether you choose 1 April or 6 April to start your digital record keeping.
If you’re a sole trader or landlord and your business turnover is between £30,000 and £50,000, MTD ITSA will be mandatory for you from 6 April 2027. The digital record-keeping start date and corresponding reporting dates will follow the same pattern as for those who start MTD ITSA in April 2026.
Tip. Following a consultation in 2023, HMRC has confirmed that if you’re a sole trader or landlord with an annual turnover not exceeding £30,000, you won’t be required to adopt MTD ITSA.
First change - reporting requirements
An important change to MTD ITSA reporting was confirmed in the Finance Act 2024. Previously the idea was that each quarterly report of your accounting records was standalone and would be aggregated by a separate additional report made once a year called the end-of-period submission (EOPS). However, the EOPS has been abandoned and the quarterly reports will instead be cumulative.
Second change - reporting due date
A change that will be popular with most people is making the reporting date consistent with that for VAT returns. Each quarterly report must be filed with HMRC by the 7th (instead of the 5th) of the month following the end of the quarterly reporting period. This means you’ll have to submit reports by: 7 August, 7 November; 7 February; and 7 May.
Third change - joint landlords
To get around the practical problem that landlords of jointly-owned properties would face sharing their business records in time for each to make their quarterly reports, they will be allowed to submit simplified records. Essentially, each landlord will only be required to report their share of the rental income. Expenses can be ignored for the purpose of the quarterly report and only reported on their final declaration for the tax year.
Fourth change - more exemptions
The new rules confirm that anyone without an NI number and foster carers will be exempt from MTD ITSA.
Tip. It was originally proposed that individuals without an NI number would have to apply to HMRC for exemption. However, this has now been dropped, and instead this exemption will apply automatically