Due to the challenges faced by the self-employed and landlords from the harsh economy, the government has announced a delay to the forced adoption of its digital tax service.
Making Tax Digital would be a landmark change to the way people report their income and expenses for tax purposes to HMRC - and it was previously part of a phased rollout plan to make the self-employed and landlords (with incomes over £10k) join the scheme in April 2024.
Under the now newly announced plans, their is now a delay of two years phased in, and thus the mandatory requirement begins in April 2026. This is phased based on income levels and applies as follows:
- Self-employed individuals and landlords earning more than £50,000 join the scheme in April 2026.
- Self-employed individuals and landlords earning between £30,000 and £50,000 join the scheme in April 2027.
- For those earning less than £30,000 a reform to the way MTD operates is under review. More on this later.
Joining the MTD (Making Tax Digital) scheme means individuals must keep digital records of their income/expenses and provide HMRC with quarterly income and expenditure updates. This will not be possible through HMRC websites, such as the current HMRC Self Assessment system. Instead, people will be required to use specialist accounting software to keep business/income records and then have that software 'digitally' transmit updates to HMRC systems.
Regardless of the timescales above, prior to the mandatory requirement most people can also join MTD voluntarily. HMRC touts the scheme as 'better' than the current system due to proven reduction in errors, as well as efficiency in time spent updating records.
Those earning under the £30,000 threshold not covered in the above two phased roll-outs are being discussed internally by HMRC. A review into how MTD for ITSA (income tax self assessment) works is being conducted to possibly make a cut-down requirement for digital records for this category of incomes. More information about this will be revealed closer to April 2027.
Additionally, partnerships will no longer be forced to join MTD in 2025 as previously required - no timeline as yet has been published for this cohort.