Making Tax Digital Small Business Review

In December 2022, the government announced that self-employed individuals and landlords will have more time to prepare for Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA).

Those with an annual income over £50,000 will be mandated to join MTD from April 2026, followed by those with income over £30,000 from April 2027. The government remains committed to the future introduction of MTD for ITSA to partnerships as part of its tax administration strategy. 

In the Autumn Statement 2023, the government has announced that it will make design changes to the Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) system, simplifying and improving this for taxpayers and their representatives.

These changes will:

1. Simplify the requirements for all taxpayers providing quarterly updates, and for taxpayers with more complex affairs – under MTD for ITSA, customers must send summary updates of their business and property income and expenses to HMRC every three months.  Rather than a total for the three month period covered within the update, each update will be a cumulative total of income and expenses accumulated during the tax year to-date. This will remove the burden upon customers of having to resubmit a previous update where corrections to previously submitted figures are required.

2. Introducing easements for landlords with jointly-owned property – to reduce the administrative burden for landlords with jointly-owned property, landlords will be able to: 

• choose not to submit quarterly updates of their expenses which relate to jointly owned properties, which will reduce their in-year administration. These records will still need to be submitted before customers finalise their tax position for the year
• keep less detailed digital records in relation to their jointly owned properties, therefore simplifying the transfer of records between joint owners.

3. Remove the requirement to provide an End of Period Statement (EOPS) – MTD for ITSA’s original design required customers to make such accounting and tax adjustments as law requires and claim any allowances or reliefs available against their business or property income following the submission of the year’s quarterly updates. Customers would then be required to make an End of Period Statement (EOPS) declaration to confirm that information for the accounting period is correct and complete, finalising the year’s income for each income source. As MTD-compatible software will minimise the need for the EOPS as a formal process within MTD, this requirement will be removed.

4. Exempt some taxpayers, including those without a National Insurance number, from MTD – the government will remove the need to operate MTD for ITSA in relation to receipts for qualifying care income (unless they have other business or property income above the MTD threshold) and for customers who are unable to obtain a National Insurance Number. In cases where a customer’s inability to acquire a National Insurance Number is temporary, they would subsequently be mandated into MTD.

5. Enable taxpayers using MTD to be represented by more than one tax agent.