The digital evolution of tax reporting is upon us, and Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is a pivotal part of this transformation. With its rollout approaching, many individuals are trying to determine how these new regulations will affect their financial obligations. Let’s delve into the most frequently asked questions to demystify MTD for ITSA.
What categories of taxpayers will be subject to MTD for Income Tax?
Q: Who is required to participate in MTD for Income Tax?
A: Self-employed individuals and landlords with a qualifying income exceeding £50,000 per year will be required to comply from April 2026. This threshold will then decrease to £30,000 from April 2027.
Q: Who is exempt from MTD for Income Tax requirements?
A: Individuals with income below the specified thresholds (£50,000 initially, then £30,000) are not required to participate. Also, those with income solely from PAYE (Pay As You Earn) are generally exempt unless they have significant supplementary income from self-employment or property.
Q: If I'm VAT registered, do I need to submit separate quarterly updates for VAT and Income Tax?
A: Yes, if your business is VAT-registered and falls within the scope of MTD for ITSA, you must file quarterly updates separately for both VAT and Income Tax. These are distinct tax regimes with different reporting requirements.
Q: How can I synchronise my VAT and Income Tax quarterly reporting periods?
A: While perfect alignment may not be possible, you can utilise accounting software that offers flexible reporting periods. Talk to your accountant or tax advisor to develop a strategy to minimise the administrative burden.
Q: Are the deadlines for VAT and MTD for Income Tax the same?
A: While standard VAT and Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) deadlines are distinct, it’s possible to align them. Typically, VAT returns are due quarterly, and MTD for ITSA involves quarterly updates followed by an End of Period Statement and a Final Declaration. However, if a business chooses to align its VAT and ITSA quarterly periods, and if its VAT stagger is also aligned, the submissions can be made on the same dates. Specifically:
- Businesses can opt for ‘calendar quarters’ for MTD ITSA (April 1st to June 30th, etc.) instead of the standard tax year quarters.
- If their VAT periods also match these calendar quarters, and because the MTD ITSA deadline has been changed to the 7th of the following month, they can submit both VAT and MTD ITSA updates simultaneously.
Therefore, while not automatically aligned, careful planning and adjustments to reporting periods can create a scenario where VAT and MTD ITSA deadlines coincide.
Q: Do the MTD for Income Tax thresholds apply to each individual property or the landlord's total income?
A: The thresholds apply to the total qualifying income of the landlord, not to each individual property. If the landlord’s combined rental income exceeds the threshold, they must comply with MTD for ITSA.
Q: How many submissions are required annually under MTD for Income Tax?
A: You’ll need to make six submissions annually: four quarterly updates, an End of Period Statement (EOPS), and a Final Declaration.
Q: Are partnerships included in MTD for Income Tax, and when do they need to comply?
A: Yes, partnerships are affected. From April 2025 onward, general partnerships must comply with the MTD for ITSA regulations. Limited liability partnerships (LLPs) and other partnership structures will follow later.
Q: Do CIS-registered subcontractors need to comply with MTD for Income Tax?
A: Yes, CIS-registered subcontractors who meet the income thresholds will be required to comply with MTD for ITSA. CIS deductions will need to be factored into their digital records and quarterly updates.
Q: Will CIS rebates be issued quarterly under MTD for Income Tax?
A: No, CIS rebates will not be generated quarterly. The CIS deductions will be accounted for in your digital records and quarterly updates, but the final reconciliation and any resulting rebate will occur during the Final Declaration.
Signing up for MTD for Income Tax
Q: When do I need to sign up for MTD for Income Tax?
A: You will need to sign up for MTD for ITSA before the start of your first accounting period that falls within the mandated dates. For example, if your accounting year runs from January to December and you’re required to comply from April 2026, you must sign up before January 1st, 2026.
Q: How do I sign up for MTD?
A: You will sign up through your HMRC online account. HMRC will provide detailed instructions on the sign-up process.
Q: How will I know if I need to sign up?
Q: Will I need to renew my 64-8 authorisations under MTD for Income Tax?
Q: Is there an MTD for the income tax pilot programme?
A: Yes, HMRC has been conducting pilot programmes to test and refine MTD for ITSA.
Record keeping, reporting, and submissions
Q: How will information about personal income be submitted with MTD for Income Tax?
A: Personal income not related to self-employment or property will be reported in the Final Declaration.
Q: Does MTD for Income Tax bring about any alterations in the methods used to pay taxes?
A: While MTD for ITSA changes how information is reported, the fundamental process of paying tax remains largely the same.
Q: What happens if I need to amend a submission with MTD for Income Tax?
A: You will need to make corrections in your digital records and resubmit the relevant quarterly update or Final Declaration.
Q: Are spreadsheets acceptable for maintaining digital records when complying with MTD for Income Tax?
A: Spreadsheets can be used, but they must be MTD-compatible, meaning they must be able to digitally link to HMRC’s systems via API.
Q: Do the two thresholds refer to income or profit with MTD for Income Tax?
A: The thresholds refer to gross income, not profit.
Q: If I own several businesses, each with income below the MTD for the Income Tax threshold of £50,000 or £30,000, but their combined income is above it, am I required to adhere to MTD for Income Tax?
A: Yes, if your combined income from all businesses exceeds the threshold, you will be required to comply with MTD for ITSA.
MTD for Income Tax and Self Assessment
Q: For incomes under the £50,000/£30,000 MTD thresholds, does the current Self Assessment process remain in place?
A: Yes, if your income is below the thresholds, you will continue to use the current Self Assessment process.
Q: How does MTD for Income Tax change the current process for Self Assessment?
A: MTD for ITSA introduces digital record-keeping and quarterly updates for sole traders or those with property income witha qualifying gross income, replacing the annual submission of a Self Assessment tax return for those above the threshold.
Q: Does compliance with MTD for Income Tax necessitate the use of software?
A: Yes. Using MTD-compatible software will be the most common way to comply with the rules of MTD for ITSA. It is possible to use a spreadsheet such as Excel to maintain your records, but you can’t submit your VAT figures to HMRC this way as it isn’t MTD-compliant. With a spreadsheet, you will need to use bridging software.
Final thoughts
MTD for Income Tax represents a significant change in tax reporting, aiming to enhance efficiency and accuracy. Understanding its requirements and preparing early will help ensure a smooth transition. If you need assistance, consult a tax professional or accountant to navigate MTD effectively.
