Originally planned for April 2023, this was put on hold as neither HMRC nor the software vendors were adequately prepared and ready for it. Many questions on the practical implementation could not be answered.
However, it is now a certainty and will be introduced and in a somewhat scaled-back and reduced manner. Also, it will be phased in over a 3 year time period. (It is hoped this will allow software providers, taxpayers and HMRC to figure it all out in time for when everyone is affected!)
To qualify for MTD reporting:
- From 6 April 2026: self-employed or gross rental income of £50,000+
- From 6 April 2027: self-employed or gross rental income of £30,000+
- From 6 April 2028: self-employed or gross rental income of £20,000+
A tax return for the 2024/25 tax year (deadline for filing on/before 31 January 2026) will be the basis for determining if you need to comply with MTD initially.
Once caught by MTD, you need to have three consecutive years below the threshold before you can be removed from the MTD obligations. This is to prevent taxpayers yo-yo’ing in and out as their income tips over, or dips below, the threshold. (It also is yet another cost on small scale landlords and the self-employed.
Partnerships are currently excluded from MTD – although in time they will come to be included. No date has been set yet and it is still very unclear just how this will integrate with MTD reporting generally.
The standard quarters will be:
- 6 April to 5 July [deadline to file: 7 August]
- 6 July to 5 October [deadline to file: 7 November]
- 6 October to 5 January [deadline to file: 7 February]
- 6 January to 5 April [deadline to file: 7 May]
Unlike VAT quarters that can vary, MTD quarters are set. This will also place a greater work load on accountants (and tax payers) at certain points during the year. How to effectively manage this workload is also going to be journey of discovery with clients that leave it to the last minute likely to end up with higher accounting fees to reflect the extra stress.
There will also be a 5th return that is a true-up of any errors recorded in the prior quarter returns.
And finally, after all this extra administrative burden, the usual year end tax return will still need to be done as per normal. It is hoped that there may be some savings of time in preparing this.
We are currently exploring the most cost effective and easiest way to comply but currently it is a very fluid and changing market with lots of changes and updates. There are some new software players in the market that are hoping to capitalise on the enforced digital automation. Some providers are offering very discounted prices with the business model that they will then increase it over time and rely on their users to be too lazy to move. Ultimately, we will likely go with an established software provider with a robust system and good customer support as opposed to the cheapest option on the market… but time will tell!
