Date posted: 27th Mar 2025
From April 2026, some individuals will be required to comply with Making Tax Digital (MTD).
This will apply for those individuals who have a combined annual income from a sole trade and / or rental income exceeding £50,000.
From April 2027, this limit decreases to £30,000. It was also announced as part of the Spring Statement measures that this threshold will decrease to £20,000 from April 2028.
So to take an example, say Darran has a small sole trader gardening business. That business turns over £35,000 of income. Darran will be required to comply with MTD from April 2027. If Darren also has three rental properties generating say £6,000 each per annum, in income, he will be required to comply with MTD from April 2026, as his total income is over £50,000.
This will initially be based on the income declared on the 2024/25 Return submitted by 31 January 2026. Meaning that HMRC will know that those who need to comply from April 2026.
But what does it mean, to comply with MTD?
Essentially, it will mean that business records need to be kept in a digital format. In addition, the taxpayer will be required to submit details of income and expenditure on a quarterly basis to HMRC. Then also submit a year end declaration. This will all need to be done via software.
Why is this being brought in?
MTD is aimed at providing more accurate record keeping and reducing errors in reporting taxes to HMRC. This is part of the Government’s initiative to reduce the tax gap.
The tax gap is the difference between the amount of tax that should (theoretically) be paid to HMRC and the amount that is actually paid to HMRC. The tax gap is estimated to be c£40bn.
What about companies, partnerships and LLPs?
At the moment, these businesses are not within the scope of MTD although they will be brought into MTD at a later date, although that date is unknown.
We will be formally writing to those clients impacted over the next 12 months but if you have any queries, please give us a call.
