MTD for ITSA: introduction delayed, and threshold increased

Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will require unincorporated businesses, self-employed individuals and landlords to use MTD compatible software to keep digital records and provide HMRC with quarterly updates on their income and expenditure. To allow taxpayers, their agents, software providers and HMRC more time to prepare for these fundamental changes to ITSA, the Government has announced a phased introduction from April 2026 (previously April 2024) and an increase in the previous gross income threshold from £10,000 to £50,000 from April 2026 reducing to £30,000 from April 2027. A review of the needs of smaller businesses was also announced. Mandation of MTD for ITSA will no longer be extended to general partnerships from April 2025, with any revised date not yet confirmed.

Self-employed and Landlords

Mandatory use of MTD compatible software and quarterly reporting to HMRC will apply to self-employed individuals and landlords:

• From April 2026 to those with a turnover of more than £50,000; and
• From April 2027 to those with a turnover between £30,000 and £50,000.

General partnerships

The Government has confirmed that mandation of MTD for ITSA will not be extended to general partnerships in 2025 as previously announced. The announcement states that the Government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out within its Tax Administration Strategy.

Government Review

The Government has announced a review into the needs of smaller businesses, particularly those with turnover under the £30,000 threshold. The review will consider how MTD for ITSA can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their Income Tax obligations, as well as inform on the approach of any further roll out of MTD for ITSA after April 2027.

MTD for ITSA

MTD for ITSA is a fundamental change to tax reporting for individuals and will replace the Self-Assessment tax return with a series of quarterly submissions, an End of Period Statement and a Final Declaration.

Under MTD for ITSA, businesses (initially self-employed individuals and landlords) will be required to keep digital records and send a quarterly summary of income and expenditure to HMRC using MTD compatible software. Following the end of the tax-year, using the MTD compatible software, individuals will be able to finalise their business affairs and include other sources of non-business income (e.g. dividends, interest) and capital gains when calculating their final tax position for the year.

Based on the figures reported to them quarterly, HMRC, are planning to provide individuals with estimated tax calculations to help them budget for the tax due, although the due dates for payment of Income Tax will, at least initially, remain unchanged.

Comment

This is a very welcome delay to the introduction of these fundamental changes to tax reporting and filing for individuals. For employers of internationally mobile individuals, the increased threshold should help to reduce the number of assignees whose current tax reporting obligations will be impacted by MTD for ITSA.

In light of the delay, there is now more time for HMRC to collaborate on solutions to significant issues that still need to be resolved to enable efficient implementation and operation of MTD ITSA. Encouraging comments from the Government include:

• Jim Harra, Chief Executive and First Permanent Secretary of HMRC stated “We want to make sure we get this right and deliver it effectively”; and
• Victoria Atkins, Financial Secretary to HM Treasury, stated “It is important to ensure this works for everyone: taxpayers, tax agents, software developers as well as HMRC”.

The forthcoming introduction of MTD for ITSA highlights the need for individuals to ensure that they are maintaining appropriate accounting records so that, once these fundamental changes are mandated, they are ready and able to meet the statutory filing requirements. Please speak to:

• A specialist in our Family Office and Private Client team who look after the tax affairs of high-net-worth individuals; or
• A specialist in our Global Mobility team who assist employers who provide tax compliance services for internationally mobile employees.

For further information please contact:

• Simon Johnson

• Mike Lavan