In just over a year the first tranche of sole traders and landlords will be required by law to keep digital records to comply with the requirements of Making Tax Digital for Income Tax (MTD IT)
From April 2026, taxpayers with qualifying trading and property income of £50,000 or more on the 2024-25 tax return will be mandated to join MTD IT. The start date for incomes between £30,000 and £50,000 is April 2027. The Chancellor confirmed in the Spring Statement that MTD IT will be extended to those with income of £20,000 or more from April 2028.
This is a fundamental change to the way sole traders and landlords report their results to HMRC and will eventually apply to almost everyone who receives income from self-employment and/or property.
To comply with the requirements, mandated taxpayers must:
- Use approved software, apps or spreadsheets to record income and expenditure;
- Submit cumulative quarterly updates to HMRC by 7th August 7th November, 7th February and 7th May each year; and
- Complete a final annual submission of taxable profit for the accounting period at the end of the year. This will replace the current self-assessment tax return.
If you do not currently keep digital accounting records, do not worry, as we will be able to help you with the process. HMRC is not providing its own record-keeping software or platform. We will be able to recommend the right commercial software solutions that meet the MTD IT requirements for you.
An exemption from MTD IT will be available for taxpayers who are digitally excluded on practical or religious grounds. Some of the reporting rules for quarterly updates have been relaxed to simplify the process for certain categories of taxpayer.
Three-line accounts
Digital records can simply be tagged as either ‘income’ or ‘expense’ rather than specific categories, except for mortgage interest for landlords of residential properties.
Retailers
A single record of daily gross takings can be entered into the digital records, rather than each individual sale.
Jointly let property
The individual owner can record a single total amount for each category of:
- Property income received during a quarter; and
- Property expenses incurred during the tax year.
We have been preparing to help our clients navigate the changes for some time, so contact us without delay to discuss what you need to do to get your business MTD-ready.