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HMRC: self-employed mandatory digital record keeping and quarterly reports delayed until 2026

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The UK’s self-employed have made a collective sigh of relief following the government’s delay of mandatory digital record keeping and quarterly reports of their company’s finances. The mandatory use of software is therefore being phased in from April 2026, rather than April 2024.

  • The new start date of April 2026 for self-employed income over £50k – moved from April 2024 and lower threshold of £10k.
  • Businesses with income over £30k will need to comply by April 2027.
  • Income less than £30k? A decision over MTD has not been made yet.

Understanding that self-employed individuals and landlords are currently facing a challenging economic environment, and the transition to Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) represents a significant change to taxpayers and HMRC for how self-employment and property income is reported, the government said it is giving a longer period to prepare for MTD.

GOV.UK guidance on Making Tax Digital for Income Tax will be updated shortly.

“HMRC has been struggling to communicate the rules of the scheme for some time (sceptics might say it’s because they haven’t made any yet), so the postponement comes as no real surprise to the accounting industry,” said Kathryn Frimond, a Farnham-based bookkeeper.

“Despite this, we still require all clients to be on some sort of digital software. Compliance with MTD aside, it’s an easy, less time-consuming way to run your business and have real-time information at your fingertips,” she said.

What’s changed for MTD?

Before the announcement, MTD for ITSA was mandated from April 2024 for customers with a total gross income over £10,000 from self-employment and property in a tax year, with partnerships mandated from 2025. Mandation of MTD for ITSA will not be extended to general partnerships in 2025 as previously announced. The government remains committed to introducing MTD for ITSA to partnerships in line with its vision set out in the government’s tax administration strategy.

From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software.

Those with an income of between £30,000 and £50,000 will need to do this from April 2027. Most customers will be able to join voluntarily beforehand meaning they can eliminate common errors and save time managing their tax affairs.

The government has also announced a review into the needs of smaller businesses, particularly those under the £30,000 income threshold. The review will consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to fulfil their Income Tax obligations. It will also inform the approach for any further roll out of MTD for ITSA after April 2027.

The announcement relates to MTD for ITSA only. Making Tax Digital for VAT has already been implemented and is demonstrating the benefits to businesses and the tax system of digital ways of working.

Victoria Atkins, Financial Secretary to the Treasury, said:

It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

Smaller businesses in particular should be able to experience the benefits of increased digitalisation of Income Tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this.

Jim Harra, Chief Executive and First Permanent Secretary, HM Revenue and Customs, said:

A phased approach to mandating MTD for Income Tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring.

How much will MTD software cost?

HMRC estimates a transitional cost to business of around £1,383 million and a net increase in the ongoing costs of tax compliance of around £152 million for those businesses mandated to use MTD for ITSA. This equates to an average transitional cost of £330 and an annual cost of £35 per business within scope. 

How will MTD work?

Under MTD for ITSA, businesses, self-employed individuals and landlords will keep digital records, and send a quarterly summary of their business income and expenses to HMRC using MTD-compatible software. In response, they will receive an estimated tax calculation based on the information provided to help them budget for their tax. At the end of the year, they can add any non-business information and finalise their tax affairs using MTD-compatible software. This will replace the need for a Self Assessment tax return.

A copy of the Written Ministerial Statement made by Victoria Atkins, Financial Secretary to the Treasury, on 19 December 2022 is available on UK Parliament: Written questions, answers and statements.

1 Comment
  1. Tim Phipps says

    I expect that he rules will require the use of software or online services from a list that HMRC makes up with help from the financial software industry, just like with MTD for VAT. It will explicitly disallow spreadsheets, even though they are software and with the full knowledge that most businesses covered by the changes use spreadsheets.

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