HMRC have published the outcome of their review into how Making Tax Digital (MTD) for Income Tax will address the needs of small businesses. This has resulted in some proposed changes to how it will be introduced in 2026.
By meeting with stakeholder groups that included accountants, business and landlord representative bodies and software developers HMRC considered:
- Whether MTD for Income Tax Self Assessment (ITSA) remains the right strategic approach for unincorporated trading and property businesses with income under £30,000 and whether the mandation threshold should be lowered below £30,000.
- How MTD for ITSA will work for businesses that use more than one tax agent.
- How best to design the process for landlords with jointly-owned property.
- The need for relaxed requirements for customers without a National Insurance Number (NINO).
The review has not brought about any decision about whether and when businesses with income below £30,000 will be mandated into MTD for ITSA, with HMRC simply continuing to promise to keep this under review.
However, the following changes announced at Autumn Statement 2023 came as a direct result of the review:
- The improved design of quarterly updates allows each update to be a cumulative total of income and expenses accumulated during the tax year to date instead of a total for the three-month period covered within the update. This will remove the burden on taxpayers of having to resubmit a previous update where corrections to previously submitted figures are required.
- The removal of the requirement for End of Period statements (EOPs) as feedback from stakeholders was that these could be confusing for users and lead to duplication of information.
- Landlords are to be given the option to:
- Not submit quarterly updates of expenses that relate to jointly owned properties, to reduce in-year administration. However, these records would still need to be submitted before taxpayers finalise their tax position for the year.
- Keep less detailed digital records in respect of their jointly owned properties.
- Specific groups of individuals to be exempt from MTD for ITSA:
- Foster carers in respect of qualifying care income.
- Taxpayers who cannot obtain a NINO as this will act as a barrier to accessing digital services. However, if the absence of a NINO is only temporary then mandation will come at a later date once one has been issued.
- The facility for taxpayers to be represented by more than one tax agent within MTD for ITSA. This would enable quarterly updates to be done by one agent with another agent completing end-of-year processes and the final declaration.
In addition, HMRC have advised in the report that they are continuing a range of work to support the introduction of MTD in April 2026, including:
- How to support taxpayers who still do not have a tax year-end accounting period end even after the new Basis period rules are fully operating from 2024-25.
- Reviewing minimum standards for software developers.
- Supporting software developers, agents and taxpayers to ensure that they are ready for MTD for ITSA by 2026 by encouraging participation in the planned public beta testing programme scheduled to begin in 2025 and voluntary early adoption of MTD for ITSA.
HMRC plans to publish a technical consultation on draft regulations for the proposed changes in February 2024.
Useful guides on this topic
Making Tax Digital: Index & timeline
When does Making Tax Digital (MTD) apply? What does Making Tax Digital really mean? How will it affect you? Does MTD mean quarterly reporting? Is my business exempted from Making Tax Digital?
Basis Period reform
What is basis period reform? Who is affected? What is the new basis year for tax? What are the transitional rules?
MTD: Toolkit for accountants
What is the current timetable for Making Tax Digital (MTD)? How will it work? Which clients will be excluded? What planning needs to be undertaken?
Making Tax Digital: Survival guide (for the self-employed & landlords)
The way that some self-employed taxpayers report their business profits to HMRC is set to change under the Making Tax Digital (MTD) for the business regime, when it begins to apply to Income Tax reporting.
Corporate report: Making Tax Digital Small Business Review: outcome