WHAT IS MTD FOR INCOME TAX?

MTD is the Government’s policy to digitise the UK tax system to allegedly, simplify the process for taxpayers and improve their experience.

It stems from the fact that the Treasury believes it lost £8.5 billion between 2018 and 2019 due to avoidable mistakes from taxpayers – errors that the Government believes technology and technological knowledge could have prevented.

Under the requirements of MTD for ITSA, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to file quarterly returns to HMRC and maintain accounting records electronically, using suitable software or on spreadsheet.

A final end of period statement will then be submitted after the tax year to complete the individual’s MTD position. An annual Tax Return will be required, as usual.

As far as we know the frequency of reporting will change, but the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January and 31 July will remain the same.

UPDATED GUIDANCE

We now know that the rollout of MTD for ITSA will be phased, depending on the level of a taxpayer’s income:

• April 2026 – Initially, MTD for ITSA will be rolled out to self-employed individuals and landlords with income over £50,000
• April 2027 – The following year it will be rolled out to self-employed individuals and landlords with income between £30,000 and £50,000
• The Government will consult further before making a decision on bringing individuals with income under £30,000 into MTD for ITSA.

It is not yet known how the income thresholds will be calculated.  Previously, the proposed £10,000 income threshold, applied to gross income or turnover, not profit, and to the total gross income where the individual or entity has more than one trade or property business.

PARTNERSHIPS

The Government intends to extend MTD for ITSA to general partnerships, corporate partners and Limited Liability Partnerships. However, the details of when these will be required to join MTD have not yet been confirmed.

EXEMPTIONS FROM MTD ITSA

HMRC had confirmed that the following categories of taxpayers will be exempt from MTD ITSA:

• Non-resident companies
• Trustees, executors and administrators
• Foreign businesses of non-UK domiciled individuals.

GOING FORWARD

The biggest challenge for many clients will be changing the way they currently keep their records, to keeping records in a prescribed format using a particular software.

However, with a lengthy delay it remains to be seen if the current guidance will change completely. We will be closely monitoring the situation and we will continue to send out regular updates on MTD, to ensure the transition is well managed.