Changes to Making Tax Digital for Income Tax Self-Assessment
The Autumn Statement 2023 saw some updates to Making Tax Digital for Income Tax Self-assessment (MTD for ITSA) that will impact individuals who are sole traders and/or landlords.
Whilst the timeline of being phased in from April 2026 remains the same, the government has considered concerns raised by stakeholders and has announced a slight reform to help ease the administration burden and simplify the process.
Key changes for all users of MTD ITSA
Simplification of quarterly submissions
Each quarterly submission will now be treated cumulatively for the year to date, meaning that the final quarterly update will include 12 months’ worth of income and expenses and there will be no need to resubmit earlier quarters where there are adjustments.
Removal of End of Period Statement (EOPS)
The previously announced EOPS will be removed. Previously the EOPS was required as a form of declaration to finalise the total income from each business income source, and then a final declaration (equivalent to the current tax return) was to be submitted for a finalised tax position across all income sources.
Enabling more than one agent to represent you
The government has also recognised the need for MTD users to be able to authorise more than one agent for MTD for ITSA with HMRC. As an example, users will be able to authorise one agent who manages their quarterly updates, and another agent who completes year end declarations and processes to help manage their tax responsibilities.
Changes for joint landlords
Landlords who jointly own property are required to report their own share of income and expenses. Joint landlords can now elect to submit only the income figures on their quarterly submissions, with expenses only needing to be submitted annually.
While this is a simplification to in-year reporting, the expenses will need to be reported eventually and it is easier to record these as they are incurred rather than waiting until after 5 April. We have a good alternative solution for recording and dividing expenses which will give joint landlords better information on the property costs as well as dealing with their MTD obligations. Please ask your usual Kreston Reeves contact for more details or get in touch with a member of our team.
Additional exemptions identified
Certain groups who will be exempt from the MTD for ITSA requirement have been identified. Those who are not entitled to a National Insurance Number will be exempt. Foster carers will also not be required to use MTD for ITSA in relation to receipts for qualifying care income.
Non-aligned accounting periods being considered
HMRC has confirmed they are working with software developers for options to support unincorporated businesses with an accounting period that does not align with the tax year. Although with basis period reforms being introduced from tax year 2024-25, many users will already have periods aligning with the tax year by the time MTD is in place.
Minimum standards for software providers
HMRC is also committed to reviewing minimum standards for software developers to ensure that MTD users get the most value out of MTD for ITSA by developing communications and encouraging voluntary early adoption of MTD.
Penalties will also be charged to those who voluntarily join
The new penalties system will now apply to those who voluntarily join MTD for ITSA. The new points-based system will penalise those who persistently miss filing and payment deadlines, whist giving more leniency to those who occasionally fail to meet obligations. Penalties may only be charged on annual obligations due in January 2026.
Reminder of key dates
- From April 2026, self-employed individuals and/or landlords with annual income above £50,000 will be required to keep digital records.
- From April 2027, those with annual income above £30,000 will be brought into the system.
More details are to be released at a later date. In the meantime, if you would like any further information, please get in touch with a member of our team who would be happy to help.
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