Making Tax Digital (MTD) Update – Key Changes Ahead

what is making tax digital, who needs it?

What Is 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 Making Tax Digital (MTD) will change how individuals and businesses record and report their transactions and taxes. HMRC believes that MTD will reduce the scope for errors and enable taxpayers to keep better track of the taxes they owe. Reports indicate that MTD has worked for VAT, with businesses feeling more confident about the VAT returns they submit and producing them much quicker than before.

April 2026: Who needs Making Tax Digital (MTD) ?

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 currently use spreadsheets, you will need to make them API-enabled to connect with the appropriate software for reporting. You must enable all interfaces between different systems electronically. You will need to submit quarterly reports to HMRC using this software.

HMRC is likely to reduce the threshold for joining MTD to include everyone over time. They have already announced that individuals with rental or sole trade income exceeding £30,000 must join starting in April 2027.

The rental and sole trade income refers to the combined gross income rather than profit. For example, if you have £20,000 in rental income and £35,000 in sole trade turnover, you will meet the threshold

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.

What is 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, you must meet certain eligibility criteria:

  • 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:

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.

What is Making Tax Digital 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, which initially excludes smaller businesses, the current thinking is that MTD for Corporation Tax could apply to all businesses once introduced, except for those with a digital exemption.

If You Engage With 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.

Author: Kavit Sethi
Published on: Last updated: 18th November 2024