Following the Autumn Statement, you might be curious about the specific measures that impact Making Tax Digital (MTD). Especially since digital transformation is already underway, with Making Tax Digital for Income Tax on the horizon.
Here’s a guide outlining what the announcement means for your practice and clients.
Phased mandation is still going ahead
Making Tax Digital for Income Tax (MTD for ITSA) is still coming into place. Self-employed people and landlords earning above £50,000 annually will still be mandated to join MTD for ITSA in April 2026, with those earning above £30,000 to follow in 2027.
HMRC research and evaluation of MTD for VAT has shown that the system can reduce errors, save businesses time, and help them get their taxes right. However, the latest review has revealed that more can be done to simplify and enhance the design of MTD for ITSA.
Let’s explore the proposed changes below.
More time for smaller businesses
Further mandation of MTD for ITSA for those earning below £30,000 annually will remain under review. This will give HMRC time to assess the initial phases of MTD for ITSA, understand user experience, and make sure software exists to support smaller businesses.
Your clients earning below £30,000 can still voluntarily register for MTD for ITSA – providing they have compliant software in place.
Simplified submission processes and requirements
Quarterly updates are central to MTD for ITSA. HMRC is tweaking the design of these updates to make it easier for you and your clients to amend and correct errors throughout the tax year.
Instead of sending a quarterly update for three months’ worth of records at a time, you’ll be able to send cumulative updates each quarter. Each update will include a total of income and expenses for the tax year so far – meaning the final update in a tax year will include 12 months’ worth of records.
This way, users can make adjustments for previous quarters in their next submission – without having to submit an additional update in between. This means less admin for practices and clients alike. Note – your clients will still be able to use three-line accounts with the new MTD rules in place.
Along with changes to quarterly updates, HMRC has also announced that the End of Period Statement (EOPS) will be removed. After receiving feedback that the EOPS submission potentially duplicates information already covered in the Final Declaration, HMRC has taken away this requirement.
Easements for joint landlords
Change is also afoot for landlords with jointly-owned properties. Typically, landlord clients would need to calculate their share of the income from jointly-owned properties and combine this with any additional income from sole-owned properties.
The existing design of MTD for ITSA could create challenges for joint landlords, who would need to calculate their portion of the expenses and income every quarter, and transfer financial records between each other.
To help reduce this burden, landlords with joint property income will only need to submit income figures on a quarterly basis. In regards to their expenses, these will need to be submitted on an annual basis.
Your landlord clients will also be allowed to keep less detailed records related to properties they own jointly – simplifying the transfer of records between owners.
Exemptions
Some people are unlikely to see the same benefits from MTD for ITSA, and could also face barriers to using HMRC’s digital services. For this reason, HMRC has specified new key groups that will be exempt from MTD for ITSA. They are:
- Foster carers, who will not be required to use MTD for ITSA in relation to receipts for qualifying income
- People who cannot obtain a National Insurance (NI) number, and are therefore unable to access HMRC’s digital services
Note: where an inability to obtain an NI number is temporary, individuals will be mandated for MTD for ITSA in the future.
Multiple agents
In some cases, clients may wish to work with multiple agents to fulfil their tax obligations. For example, clients could work with one practice for day-to-day bookkeeping and accounting, and another for ITSA submissions.
The UK government is exploring solutions that will allow clients to authorise more than one agent – making it easier for businesses to keep on top of their income tax obligations.
Looking ahead
Following the announcement, regulations will be laid out in February 2024 – bringing us one step closer to the MTD for ITSA rollout in 2026.
The government has also announced ongoing work in a few key areas. Here’s a quick breakdown of what you need to know:
- With Basis Period Reform coming into place for the 2024/25 tax year, handling ITSA submissions for clients with non-aligned accounting dates could prove tricky. HMRC is working with software developers to make sure functionality exists to support these clients.
- Already, cloud-based accounting software exists to help you and your clients comply with MTD rules. HMRC is reviewing minimum standards for software developers to support innovation and make sure the best possible products are on the market.
- This latest review has shown the value of collaboration and engagement between HMRC, accountancy, business, and software stakeholders. HMRC will continue this approach by delivering targeted communications to support the rollout of an ITSA beta programme ahead of April 2026.
For more on the upcoming changes to MTD for ITSA, read HMRC’s report on the Making Tax Digital small business review. You can also explore Xero’s MTD for ITSA resource hub, which contains helpful articles and guides outlining everything you need to know about the legislation.
