Making Tax Digital (MTD) – Update September 2024

There is no doubt that we are moving into an age where everything is becoming more digital. HMRC’s initiative on MTD (Making Tax Digital) is set to change the way individuals and businesses record and report their transactions and taxes. HMRC believes that MTD (Making Tax Digital) will reduce the scope for errors, and taxpayers will be able to keep better track of the taxes they owe. This is reported to have worked for VAT, and businesses seem more confident with the VAT returns they are submitting and are able to produce them far quicker than previously.

April 2026: New MTD Requirements for Individuals

The next stage of MTD will apply to individuals with rental income or sole trade income of more than £50,000. These individuals will need to adopt a new way of reporting this income to HMRC from April 2026.

Every receipt and every expense will need to be fed into a digital system that is compatible with MTD reporting. If you are currently using spreadsheets, these will need to be API-enabled so that they can ‘connect’ with appropriate software through which the reporting can be carried out. All interfaces between different systems must be enabled electronically. Quarterly reports will need to be submitted to HMRC using this software.

The threshold for joining MTD is likely to be reduced to encapsulate everyone in time, and HMRC has already announced that those with rental/sole trade income of more than £30,000 will be required to join from April 2027.

The rental and sole trade income is the combined amount and is the gross income rather than profit, so if you have £20,000 of rental income and £35,000 of sole trade turnover, you will be required to join MTD from April 2026.

What About My Usual Self-Assessment Tax Return?

If you join MTD for individuals, you will not complete your usual self-assessment tax return. At the end of the tax year, you will complete a final declaration in which you will confirm that the quarterly information you’ve already sent in is correct, and add any other personal income or reliefs.

The same deadline of 31 January will apply to the submission of the final declaration and payment of outstanding tax.

Pilot Testing for MTD for Income Tax

HMRC started running pilot testing in April 2024 to help iron out problems ahead of April 2026. A small number of businesses have opted to join the testing phase. However, to join voluntarily, there are certain eligibility criteria that must be met:

• You must use software that is already developed and available for use.
• You must have submitted at least one tax return previously.
• You must be up to date with all your taxes.

Many providers are still working on their functionality and will not be available to use until 2025/26, when more businesses are expected to join the scheme. This includes FreeAgent, Xero, TaxCalc, and IRIS.

The current list of software providers that are ready for 2024/25 is as follows:

• 1 2 3 Sheets Ltd
• APARI
• Digita Personal Tax — Thomson Reuters
• Intuit QuickBooks Online
• Sage Accounting
• SE_reports
• self assessment direct

Recent Announcements on MTD for Individuals

HMRC has recently confirmed that:

• Quarterly submissions will move to a cumulative basis, meaning that an error in a previous report can be corrected in the next one, rather than having to re-submit a quarter.
• Anyone who does not have a National Insurance number will be exempt from joining.
• Landlords who hold property in joint names will have the option to report only their share of gross income (not expenses) in their quarterly submissions. The usual reporting of both income and expenses can be done in the final return.
• If a landlord holds property in their own name and in joint names, they will still need to report both income and expenses in their quarterly submissions for the solely owned property.

MTD for Corporation Tax

To date, there has been little announced on MTD for Corporation Tax. HMRC has stated that the earliest it will commence is April 2026, but the likelihood is that it will be later.

However, unlike MTD for individuals where smaller businesses are excluded at the start, the current thinking is that MTD for Corporation Tax could apply to all businesses once introduced, other than those who have a digital exemption.

 

Think You May Need Help with MTD?

If you don’t have time or don’t wish to spend time getting to grips with MTD and the new reporting requirements, get in touch with us.

If you engage Competex, we will:

• Arrange the sign-up to MTD on your behalf, at the appropriate time.
• Provide compatible, friendly, and easy-to-use software.
• Handle all aspects of the reporting, including the final year-end declaration.

For further information, please contact us at info@competex.co.uk or visit our website at https://www.competex.co.uk.