HMRC's MTD for Income Tax - Update

The MTDfITSA saga has been running for many years, and as of 23 November 2023, this is the current state:

What is Making Tax Digital for Income Tax Self Assessment (MTDfITSA)?

Roughly 12 million individuals submit Self Assessments to HMRC each year to calculate their final tax bill.? The Making Tax Digital programme is the UK government's strategy for His Majesty's Revenue and Customs (HMRC) to modernise and digitise income and expense records to improve the tax collection process.? Making Tax Digital for VAT (MTDfVat), in effect by April 2019, is now the de facto approach to VAT collection in the UK.? MTDfITSA is far more complicated than MTDfVat.? The programme has had multiple delays and issues, and I have outlined my latest understanding of the envisaged programme with updates from the Autumn Statement by ?Jeremy Hunt.

When will MTDfITSA go live??

Starting on the 5th of April, 2026.? MTDfITSA applies initially to a relatively small base of the 12 million Self Assessment taxpayers.? Each year after that, the tax base shall increase as HMRC includes more of the 12 million self-assessment users; for example, individuals belonging to partnerships would be forced to use MTDfITSA after the first year. ?

Who is in???

Self-employed people and property landlords (outside of Limited companies) need to register.??Initially, landlords with joint property ownership are not mandated to join (HMRC must provide more information).??Individuals MTDfITSA that previously did a Self Assessment can have ten or multiple self-employment businesses and 0 to 3 (4 - Foreign property is unclear) property businesses under MTDfITSA (Ord UK property, FHL UK, FHL EEA, Foreign property).

Who is out???

Partnerships are out, and non-dom. status (has specific rules).??If a person is currently self-employed but has complications such as joint individual property ownership that generates rental income, being a partner in a partnership - will mean you are outside and continue to fill in self-assessments.??Trusts/estates, LLP and Ltd are out at the start.??Specific exemptions for income from foster care and individuals without a National Insurance Number?do not need to register for MTDfITSA.

Fundamental changes mentioned in the Autumn Statement:

1.??? The End of Period Statement (EOPS) concept has been removed from MTD for ITSA.? Previously, each business belonging to the self-employed business owner made its final submission via the EOPS.? Mr Hunt mention no more EOPS but I don’t believe that includes the declaration for each business.?

2.??? Quarterly submissions are now cumulative?bookkeeping numbers for the business.??The quarterly figures are cumulative per business for the year, i.e. Q2 submission consists of all data from Q1 and Q2.??Unlike VAT, ITSA quarters are cumulative during the year, whereas VAT is for a specific quarter.

3.??? For each self-employed business or property business, a quarterly per-business submission is due to HMRC within 30 days of the quarter's completion.??A declaration per business?is still required (31 January the following year).?

4.??? The MTDfITSA taxpayer must submit their yearly single?crystallisation?submission for the taxpayer's April year-end by the 31st of January.??An annual declaration is also required.

5.????? Digital links/keeping?(digital records).? Can't re-key/copy and paste.? ?There is no requirement to use bank feeds/PDS2 data.? Some booking software firms will likely?file quarterly MTDfITSA?returns for each self-employed (and property) business.? Spreadsheets are an acceptable form of record-keeping.???Excel and bridging software are sufficient for the source for filing.? Recording sales can use daily sales totals for the digital source but, ideally, link to the raw input system.??

6.??? Quarterly submissions requiring corrections?are cumulative now, so you merely correct a mistake by adjusting in the next period/quarter.

7.??? Starting 6 April 2026, this?shall apply to less than 500k UK taxpayers

8.??? Manadation threshold for using MTDfITSA for Self-assessment taxpayers with a combined income of ￡50k need to register for MTDfITSA; the plan to drop to the lower threshold of ￡30k in combined income has been put on hold.

9.??? There is a new?penalty system.??Late payment has interest?penalties; there is no penalty for 15 days late, then 2% for 16-31 days, and 4% is paid after this.??4% is on the outstanding balance from the day past due.? Payment is due the following year on the 31 January.??There are points, fines, and interest charges.??Penalty points for late filing, missing four quarters in 24 months, is ￡200 penalty.? Record of last 24 months retained.?

10. HMRC's systems shall support multiple Agents per individual taxpayer.? The taxpayer, accountant or service provider can make quarterly submissions using bookkeeping or bridging software.? The crystallisation/final declaration is more likely to be done by a tax accountant but could also be done by an individual or by an individual on behalf of the taxpayer.? Previously, HMRC did not account for the ability to have more than one agent.? There are clear cases where multiple agents are needed to represent the taxpayer.

Summary of comparison between ITSA & SA:

Note: Quarterly MTDfITSA is done per business and is due one month after the quarter period ends.??Property business quarters?and year-end run in the same cycles as personal tax, starting on 6 April and ending the following year on 5 April.? As MTDfIT begins on 6 April 2026, the four quarterly submissions for the 2026-2027 tax year and filling due dates are:

There will be three ways to submit a Self Assessment for the tax year 2026/2027 for personal tax:

1.??? Most people use the current?XML?online filing?done on 31 January after the personal tax year.??+-10 million people will continue to use XML filing in the 2026/2027.

2.??? Some people still use?paper-based self-assessments?due October after the tax year.

3.??? MTD for?ITSA?will be due one month after each business quarter, and the finalisation/crystallisation process is due 31 January, the year after the personal tax year.??As HMRC calculates tax as opposed to your accountant using HMRC's rule, declarations are required from the taxable individual for the year and after each quarter per business. ?Conclusion: MTDfITSA is still changing, and HMRC is changing their technology to meet the requirements; I would be somewhat surprised if there are no more amendments and changes. ?There is likely to be another delay to the mandated starting date.? About 1 and half million tax payers are likely to fall into the initial MTDfITSA mandated start in the 2026/2027 tax year. ?