Under Making Tax Digital for Income Tax (MTD for IT), certain individuals with trading or property income will be required to keep their accounting records electronically and file quarterly returns of income and expenses with HMRC. MTD for IT follows on from the basis period reform rules, mentioned in our previous blog, and applies to sole traders and landlords with turnover or gross income over £10,000 from their next accounting period starting on or after 6 April 2024. This has been pushed back from the original planned introduction date of 6 April 2023 to allow individuals and businesses more time to prepare.
Businesses commencing after 5 April 2023 are not required to use MTD immediately; their start date can be delayed until 6 April in the second year of trading.
Requirements for MTD for ITSA
From 2024/25, individuals who are sole traders or landlords with turnover above £10,000 will be required to report under MTD for IT. For those who are both a sole trader and a landlord, the £10,000 threshold will apply to the combined turnover of both businesses.
MTD for IT will also apply to:
For those who jointly own property, the threshold applies per taxpayer and not per property.
From 2025/26 partners in general partnerships consisting solely of individual partners will be required to join MTD for IT reporting. Currently there has been no announcement for the dates from which other partnerships, such as limited liability partnerships (LLPs) or partnerships with corporate partners, must join.
Certain taxpayers will be excluded from electronic bookkeeping and filing if they can satisfy HMRC that they are unable to comply with the rules. This could be due to age, disability, location, or religion.
Reporting
Under MTD for IT, taxpayers will be required to submit five returns each year: four quarterly returns, together with an end of period statement (EOPS).
Separate quarterly returns and an EOPS will be required for each trade or property business that an individual carries on.
The quarters and filing deadlines are as follows:
| Period | Deadline |
| Q1 6 April – 5 July | 5 August |
| Q2 6 July – 5 October | 5 November |
| Q3 6 October – 5 January | 5 February |
| Q4 6 January – 5 April | 5 May |
| EOPS 6 April – 5 April | 31 January |
An election can be made to change the quarterly periods to calendar quarters, and this will stay in place until withdrawn. Where an election is made, Q1 would therefore be 1 April to 30 June. The reporting deadline would remain 5 August.
A final declaration will also be required to determine the overall tax position for the year. It will include details from the EOPS, together with non-MTD income and reliefs such as interest on savings, dividend income, pension contributions or gift aid. It is due by 31 January following the end of the relevant tax year.
Payments and Penalties
The payment deadlines for income tax will remain the same, with a 31 January payment deadline and 31 January and 31 July payment dates for those who are required to make payments on account. It is possible that there will be a move to quarterly payments in the future. Taxpayers can make voluntary payments throughout the year if they wish.
For the first year of MTD there will be no late filing penalties whilst taxpayers get to grips with the new system. Penalties for errors and late payment interest will still apply. From the second year onwards, a points-based penalty system will apply.
Preparing Returns
All records of transactions will need to be kept digitally. These must be contained either in an Excel spreadsheet or using software that is MTD compliant. Where a spreadsheet is used, additional software might be required so that data can be submitted digitally from the spreadsheet directly to HMRC.
For an individual to sign up to MTD for IT they will need to use their Government Gateway account. Agents can also be authorised to act on behalf of clients for MTD through their agent services account.
What happens next?
Have you considered whether MTD for IT applies to you? If it does, are you ready? If you may need to consider additional bookkeeping support or to upgrade your accounting software, we suggest you don’t leave this to the last minute. We would be happy to discuss your requirements with you, just get in touch.
