Making Tax Digital (MTD) for Income Tax
25th of June, 2025MAKING TAX DIGITAL (MTD) FOR INCOME TAX
This is the biggest change in the way in which income tax is collected in recent times and is a mandatory change aiming to make tax administration more efficient.
It will be necessary to keep digital records and report quarterly to HMRC but payment dates will still be the same with payment due by 31 January following the end of the tax year and payments on account due by 31 January and 31 July for the following year.
MTD for Income Tax will be introduced in phases:
- From 6 April 2026 it will be mandatory for individuals (sole traders and landlords) with qualifying income over £50,000.
- From 6 April 2027, the threshold will reduce to £30,000
- From 6 April 2028, the threshold will reduce to £20,000
The Qualifying income is total gross income (before expenses) from self-employment and property, excluding income from employment, partnership profits, dividends and qualifying care receipts.
Once within the scope of MTD we must use compatible software for business records and submit quarterly updates to HMRC for each business and property. We have options to use software we already use for our VAT registered clients and for our Company Accounts and Tax Returns and will be able to use those for MTD for Income Tax.
Each quarterly update is cumulative and any errors from a previous quarter can be updated in a subsequent quarter and must be corrected promptly.
The reporting periods are for the 3 months to
- 31 March
- 30 June
- 30 September
- 31 December
And like the current regime for VAT Returns, there is a five week period until 7th of the month following for submissions to be made so returns must be submitted by
- 7 May
- 7 August
- 7 November
- 7 February
PENALTIES FOR LATE SUBMISSION
Under the new regime late filers will receive a penalty point for each late submission and once there are four penalty points there will be a £200 penalty. The penalty points expire after 24 months.
PAYMENT PENALTIES
Although the payment dates will be the same as currently, there is a new late payment penalty regime from 6 April 2025 under which 3% of the tax outstanding will be charged if tax is overdue by 15 days plus a further 3% where tax is overdue by 30 days, plus 10% per annum where tax is overdue by 31 days or more.
END of the TAX YEAR
At the end of the tax year, the taxpayer will need to also submit a final declaration with the same deadline as currently (31 January after the end of the tax year). This return will include income from other sources as now but the income from self employment or property already submitted will pre-populate the Return.
MACDONALD ACCOUNTANCY SERVICES LIMITED AND SOFTWARE
We are currently in the process of contacting all clients to update them about when they are going to be drawn into the scheme.
We will then be able to choose how we are going to fulfill the requirements. In most cases we will recommend software and a system of monthly processing for client information.
We will in some cases recommend that clients use Xero and the direct bank feeds in order to submit. Because we already use Xero for several clients and are a Xero partner we are able to offer Xero subscriptions at a discount.
There are other options also with Bridging software.
The main impact will be on timing. Client’s who are drawn into the new scheme will need to present papers in real time preferably monthly as there will be very limited flexibility to turn round quarterly updates.
As always at MacDonald Accountancy Services Limited we intend to ensure that all clients are aware of their compliance obligations ahead of time and that we meet all required deadlines. It is going to be a big change, but we feel we will be able to deliver.
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