Have you been keeping up with Making Tax Digital (MTD) for income tax? Will it impact you, if so you need to know when and how in order to plan for it.
What is Making Tax Digital?
In essence it is a change in the requirements for record keeping and frequency of submissions to HM Revenue & Customs.
Currently self-employed individuals and those with property income report this once a year to HMRC through the Self-Assessment Tax Return. Records can be kept in any format.
Will it impact me?
If yourself-employed income, income from property letting or the combination of both is over £50,000 per year, you will be required to comply with MTD for income tax. For example, a builder with £80,000 in turnover will need to comply, as would a property investor with £50,000+ of property income. Also, an individual with say £26,000 of trading income and £26,000 of property income would also be under obligation to file using MTD for income tax.
It's important to remember that the level is gross sales/letting income, it is not based on net profit.
When will it affect me?
If your income is over £50,000, you will be affected from April 2026. If your income is over £30,000, it will be from April 2027. The income is based on the most recent Tax Return. If the return for 2025-26 shows relevant income over £50,000this would trigger a start date of April 2026. With this in mind it is worth submitting the 2024-25 return as promptly as possible so you know when you will need to make the changes.
What will I have to do?
You will have to keep digital records showing the amount, category (matching those found on a Tax Return) and date of income and expenses in some form of software. This could be a paid for software or a spreadsheet.
Every three months this information needs to be submitted to HM Revenue & Customs. The deadline is one month and 7 days from the end of the period. This means your first return covering April, May & June would be due for filing by August 7, 2026.
A submission would be required for each activity. Someone with trading income and property income would need to submit a return covering their trading activity and a separate return covering the property letting transactions.
From the point where business records are created in software, all transfers of data will have to be made digitally, for instance between you and any bookkeeper or accountant.
End of Year Return
After the final quarterly updated, you would then file a tax Return. It will pre-populate with the income and expenses from the quarterly updates already filed. Entries would then need to be made making adjustments for accounting and tax purposes such as capital allowances and private use adjustments.
Ways to prepare
Plan to submit your 2024-25 Tax Return as promptly as possible if you think your income could be over £50,000. This will inform you if April 2026 is your start date for MTD for income tax or if you will be able to postpone it for another year.
If you are not already keeping records in a suitable format start thinking about how you could do this in a way that causes minimal impact on your business.
Consider using the services of a bookkeeper. Whilst this would be an added cost it could help reduce the risk of missing filing deadlines and incurring penalties from HM Revenue & Customs. The time saved and not having to pay out for software would be an advantage.
If you would like to discuss your MTD for income tax obligations and how we could help you with a complete end to end service please send us a message or give us a call.
