MTD closes in on landlords and the self employed

Landlords and the self employed with qualifying income of more than £20,000 will now have to go on to MTD from April 2028. Before March a date for this had not been set with any more precision than to take place within this parliament, that is, by 2029.Those within scope of this change will be switched on to MTD based on their income in the 2026-27 tax year.

Essentially what HMRC has done is make the three income threshold changes occur in consecutive years. The first mandatory filings under MTD start from April 2026 for earnings from self employment or property of more than £50,000 in the 2024-25 tax year. Taxpayers must be set up with MTD software before 6 April 2026.

For self assessment earnings of more than £30,000 a year in the 2025-26 tax year, MTD is mandatory from April 2027.Taxpayers must be set up with MTD before 6 April 2027.

It has been estimated that an extra 900,000 taxpayers will now be joining MTD in April 2028 so we have to hope HMRC’s systems will be ready for them.

MTD software

Another key change is that HMRC will withdraw its online filing service for taxpayers. This is contrary to its earlier undertaking that it would make suitable software available for MTD. Taxpayers will thus have to use (and most likely pay for) third party software for their digital submissions.

Late payment penalty increases

People who are behind with their payments will face stiffer fines. From 1 April 2025 these go up by:

• 2 percentage points to 3 percentage points at 15 days

• 2 percentage points to 3 percentage points at 30 days

• 4 percentage points to 10 percentage points a year from day 31

These apply to VAT taxpayers and those who have volunteered to join MTD early.

The background to the changes

HMRC’s move to digitisation aims to improve the quality of record-keeping by taxpayers, thus reducing fraud and error. It will also enable the tax authority to improve its internal processes by, for example, being able to close down legacy systems and, it hopes, improve the efficiency and cost-effectiveness of its internal operations.

MTD is a long-term process and has been under way for some time. VAT-registered businesses were the first to be moved on to it in April 2022.

The three components of MTD

The fundamental elements of MTD are:

• the requirement for digital record-keeping;

• quarterly reporting;

• the end declaration.

The 31 January deadline for filing and paying a tax return remains the same, as does the requirement for payments on account in January and July every year. And, cheerily for those worried that more frequent reporting increases the risk of being penalised for inadvertent errors, the quarterly reports do not come with a declaration so any mid-year mistakes in submissions can be corrected in the end declaration, so do not incur fines or interest.

Exemptions and deferrals

HMRC has said exemptions and deferrals will be available for people who face barriers to digital adoption. Further details about these will be published in due course.

Will MTD make SA taxpayers’ life easier?

While landlords and the self employed will inevitably grumble about the extra reporting requirements and the need to source and pay for and learn to use new software, all of which represent time away from profit-generating activities, there are positives to MTD ITSA.

MTD users will have more oversight of how they are trading because of the quarterly reports, which could help them anticipate, for example, possible cash flow problems in the next quarter. MTD software linked to spreadsheets or business bank accounts should update automatically, which will be quicker than manually inputting financial data.At present the self assessment form is a lengthy and complicated document and is a daunting prospect for many people. Under MTD the end declaration will be pre-populated with the financial data from the three quarterly reports, which will make it easier to complete. Also MTD users, by means of the quarterly reports, can spot mistakes in their tax reporting that they can fix before submitting the return with the declaration.

For those who want to know more about MTD please read our March article, Making tax digital: the clock is ticking.

For more specific advice about MTD or any other aspect of your tax affairs or business, please contact Finsbury Robinson. We are a full-service tax, accountancy and business advisory firm,and our friendly and highly experienced team are available on 01322 271 617  to answer all your questions.

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