HMRC's vision to digitalise the UK tax system is well underway. The transformation started in April 2019 with Making Tax Digital (MTD) VAT for businesses with taxable turnover above the VAT threshold. MTD VAT was extended to all businesses from April 2022 and MTD income tax self assessment (MTD ITSA) is being phased in from April 2026.
MTD VAT started in April 2019 and was extended to all VAT-registered businesses from April 2022. MTD ITSA will start in April 2026 for the self-employed and those with income from property with gross income of more than £50,000. The self-employed and landlords with income of more than £30,000 will join MTD ITSA in April 2027. No date has been set for extending MTD ITSA to partnerships.
A review was undertaken to determine whether the self-employed and landlords with gross income below £30,000 will be mandated into MTD ITSA. For the time being, this population will not be mandated into MTD ITSA, though this is being kept under review.
A revised date for when MTD corporation tax will start has not been announced.
The essential elements of MTD are:
- Businesses and organisations (which includes those with income from property) are required to maintain digital accounting records. Maintaining paper records ceases to meet the requirements of the tax legislation.
- Businesses and organisations are required to use a functional compatible software product to submit updates and returns to HMRC. The software uses HMRC’s API (Application Program Interfaces) platform to submit information to HMRC. The current HMRC online tax return services for the relevant tax are withdrawn when a business signs up to MTD.
Timeline for MTD
- From April 2019: MTD VAT is mandatory for VAT-registered businesses and organisations (including sole traders, partnerships, limited companies, non-UK businesses registered for UK VAT, trusts and charities) with taxable turnover above the VAT threshold. There was a six-month deferral of the start date, to 1 October 2019, for some more complex businesses.
- From April 2022: MTD VAT is mandatory for all VAT-registered businesses and organisations.
- From April 2026: MTD ITSA will be mandatory for the self-employed and those with income from property. It will only apply to those with turnover from self-employment plus gross rental income over £50,000.
- From April 2027: MTD ITSA will be mandatory for the self-employed and those with income from property. It will only apply to those with turnover from self-employment plus gross rental income over £30,000.
- Read more on MTD for income tax
- Read more on MTD VAT
Free webinar on MTD ITSA
Making Tax Digital income tax self assessment (MTD ITSA) is scheduled to start from April 2026. The outcome of the policy review for small businesses was announced in November 2023 and amended regulations were laid before parliament in February 2024. HMRC is launching a private beta pilot for 2024/25, starting in April. Join the tax team for the latest information, including the pros and cons of joining the pilot.
Tax Faculty
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
