The UK government is advancing the rollout of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA), with changes taking effect from April 2026. Here’s what businesses and landlords need to know:
Key Points:
- Who Needs to Comply: Businesses and landlords with turnover above the threshold (aligned with the VAT threshold) based on 2024/25 income must adopt MTD for ITSA by April 2026.
- Quarterly Reporting Deadlines: Reports are due by the 7th of the month following each quarter, with optional “calendar quarter election” aligning with standard quarters.
- Exemptions: Foster carers and individuals without National Insurance numbers are exempt from MTD for ITSA.
- Simplified Reporting: Businesses below the VAT threshold can use three-line accounting (income, expenses, profit), and retailers may report daily gross takings instead of detailed sales.
- Changes for Property Owners: UK Furnished Holiday Letting will be phased out by April 2026, removing a reporting requirement for some property owners.
Overview:
MTD for ITSA will require many self-employed individuals and property owners to submit digital tax records quarterly, improving accuracy and reducing errors. Exemptions apply to certain groups, and simplified options are available for smaller businesses. Property income will also be categorised differently, though the elimination of UK Furnished Holiday Letting simplifies reporting for affected owners.
How Quarterly Updates Will Work:
Quarterly updates, now cumulative, are due by the 7th of the following month. For instance, the first quarter covering April 6 to July 5 would be due by August 7. The calendar quarter option allows periods to align with traditional quarters (April–June, July–September), with similar deadlines.
Changes for Property Sector:
Property income reporting will soon divide into categories, such as UK and overseas non-FHLs. The phase-out of UK Furnished Holiday Letting from 2026 simplifies reporting, as income won’t need to be categorised separately.
Simplified Reporting for Smaller Businesses:
Businesses below the VAT threshold can use three-line accounting, requiring only quarterly reports of income, expenses, and profit. Retailers can summarise daily gross takings rather than recording each transaction, streamlining the process.
Three-Year Lock-In Rule:
Businesses entering the MTD for ITSA regime must remain within it for at least three years, even if turnover drops below the threshold. This ensures consistency within the digital tax system.
Preparing for MTD for ITSA:
Businesses likely to meet the MTD threshold in 2024/25 should start preparing for digital record-keeping and reporting. Setting up digital systems early, staying informed, and consulting a tax advisor will help ease the transition.
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