Making Tax Digital

The government has delayed the introduction of Making Tax Digital (MTD) for income tax for landlords and self employed by two years until 2026 and raised the threshold

In a major change to the reporting requirements, the threshold will be raised to £50,000 from the original plan to make the rules compulsory for any landlord or self-employed individual with income of more than £10,000.

This is the fifth delay to the rollout which was first planned for 2018. Now there has been a u-turn on the planned 2024 start date while a higher income threshold means initially 700,000 taxpayers will have to comply compared with up to four million under the original plan.

Those with an income of between £30,000 and £50,000 will need to report under MTD from April 2027 bringing a further 900,000 taxpayers into the reporting framework.

The move will be widely welcomed as there was a low level of awareness of the rule change and it netted millions of taxpayers, creating an admin headache with the requirement to report earnings quarterly as well as filing a year-end return.

The government said that it ‘understood that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to MTD for income tax self assessment (ITSA) represents a significant change to taxpayers and HMRC for how self-employment and property income is reported’.

The mandatory use of software is being phased in from April 2026, rather than April 2024. 

From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Most taxpayers will be able to join voluntarily beforehand ‘meaning they can eliminate common errors and save time managing their tax affairs’, the government said.

There will also be a review into the needs of smaller businesses, and particularly those under the £30,000 income threshold, estimated to affect 2.6m taxpayers. 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 meet their income tax obligations. It will also inform the approach for any further rollout of MTD for ITSA after April 2027.

In addition, mandation of MTD for ITSA will not be extended to general partnerships in 2025 as previously announced. The government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the Tax Administration Strategy. 

Victoria Atkins, financial secretary to the Treasury, said: ‘It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

‘Smaller businesses in particular should be able to experience the benefits of increased digitalisation of income tax in a way which meets their needs. That is why we are also announcing a review to establish the best way to achieve this.’

Jim Harra, chief executive of HMRC, said: ‘HMRC remains committed to the delivery of Making Tax Digital as a critical part of our strategy for digitalising and modernising the tax system, but we want to make sure we get this right and deliver it effectively. 

‘A phased approach to mandating MTD for income tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring.’

The new traffic light penalty system, aligning late submission and late payment penalties for income tax self-assessment with those for VAT, will come into effect for taxpayers when they become mandated to join MTD.

The government will introduce the new penalty system for income tax self-assessment taxpayers outside the scope of MTD after its introduction for MTD