A new MTD entry threshold of £30,000 will be set from April 2027, according to the government in their latest announcement around Making Tax Digital. As of 6 April 2026, a higher entry threshold of £50,000 will initially apply. The fact that Making Tax Digital for income tax self-assessment (MTD ITSA) will be rolled out in these more reasonable stages from April 2026 is welcome, but it raises issues that HMRC needs to address in the coming years.
According to the government, it will now review the needs of smaller businesses, particularly those with turnovers below £30,000. As a result of this review, the government will decide how to proceed with the MTD roll-out after April 2027.
In addition to being part of the HMRC MTD advisory panel for landlords, UK Landlord Tax has been providing HMRC with advice on its implementation. Our assessment was that HMRC was far from ready for MTD to go live in April 2024. At last, after overwhelming warnings from a wide range of sources, the announcement to delay implementation until 2026 with adjustments to the criteria was the first sign of a welcome acceptance that maybe listening to those of us at the coalface would be a sensible thing to do.
Asking landlords with one or two properties to report income and expenses quarterly, was in our opinion, and that of so many other bodies a massive overkill. Setting the turnover threshold at £10,000 was way too low and at least now that seems to have been recognized. There was absolutely no benefit to the landlord or as far as we could see to HMRC whatsoever. There is now an opportunity for HMRC to engage meaningfully. Digitalization is something we want to help with and we can see the benefits for both HMRC and landlords.
Hobby businesses and smaller landlords will not be subject to MTD reporting under the new £30,000 base threshold, which is the group most likely to have difficulty complying with MTD ITSA reporting. Those businesses that are able to report digitally should be invited to live-test the mechanics of quarterly reporting. It is only after these businesses and landlords are able to navigate MTD requirements that the entry threshold should be lowered in order to include the rest of those taxpayers who may be affected.
This approach works, as MTD for VAT followed this pattern. In that case, however, there was a three-year gap between the joining of MTD by large businesses (over £85,000 in revenue) and the mandatory registration of VAT traders from April 2022.
ICAEW has also been informed by HMRC that the MTD ITSA pilot is not open to businesses with accounting periods that do not use 5 April as the tax year-end until 2024.
It has always been denied by HMRC that self-assessment income tax payments will be moved to quarterly to coincide with MTD ITSA quarterly reporting. There was a suggestion that income tax payments should be switched to quarterly in the Timely Payment consultation, but the government decided not to make any changes as far as the current parliament stands.
While a delay to the MTD ITSA timetable may have been on many Christmas wishlists, there are still questions left unanswered including:
What are the reasons that HMRC has ruled out providing free software to taxpayers with simple affairs?
Tax calculations are the responsibility of whom, and who pays penalties if they are incorrect? Will the software supplier be liable or the client?
What steps will be taken to correct errors in quarterly updates?
Is there a way for taxpayers to claim an exemption from MTD filing?
What will happen to taxpayers who have more than one tax agent?