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Making Tax Digital delayed until 2026

Due to the challenges of the current economic environment, the UK government announced in December 2022 that the Making Tax Digital (MTD) rollout for Income Tax Self-Assessment (ITSA) has been postponed for 2 years.

Previously, people responsible for submitting Self-Assessment Tax returns were expected to switch to the Making Tax Digital
service from April 2024 if they earned over £10,000 from self-employment in a tax year. Now, this will not be mandatory until April 2026.

This means that self-employed individuals, including landlords, will have more time than expected to prepare for the transition to MTD for ITSA. Here’s a summary of what’s happening with MTD and other changes you should know about due to this postponement.

What is MTD for ITSA?

Making Tax Digital is the government’s initiative to move self-employed individuals and small businesses away from paper tax returns, improving the efficiency of the Self-Assessment Tax system by switching to an online digital platform.

Making Tax Digital for VAT was phased in starting in 2019, becoming compulsory for all VAT-registered businesses to submit their VAT returns digitally in 2022. The phasing in of Making Tax Digital for Income Tax was supposed to start this year, but was pushed back to 2024 due to the disruption of the COVID-19 pandemic – and it’s now been delayed again to 2026.

The MTD system involves submitting quarterly updates through compatible software rather than an annual Self-Assessment Tax return. This will allow you to receive an estimate of the tax that will be due at the end of the tax year, allowing businesses to report income more accurately and budget for tax payments ahead of time.

You’ll receive your actual tax bill rather than the estimates after submitting a final report by the 31st January deadline following the tax year in question (this current deadline will remain the same).

The government is hoping that this method will reduce both fraud and careless errors, increasing the revenue collected by HMRC and making business run more smoothly for everyone using MTD.

Income reporting thresholds

Not only has the deadline for joining MTD for ITSA been pushed back by 2 years, but the government also announced that they are raising the thresholds for reporting income via MTD.

From April 2026, instead of annual earnings of £10,000 or more, only those earning more than £50,000 a year will have to register and use Making Tax Digital to provide quarterly updates for their Self-Assessment returns.

From April 2027, it will be mandatory for those earning between £30,000 and £50,000
a year to sign up and switch to the digital platform.

There is currently no deadline for those earning below £30,000 a year, as the government plans to conduct a further review of the needs of smaller businesses.

Should you wish to sign up for Making Tax Digital earlier than this, it’s possible to join voluntarily before the mandated rollout. If you are a UK resident and register before 6th April 2025, you’ll have to declare both domestic and foreign earnings, but those living abroad will only have to declare earnings within the UK.

The delay and changes to the previous income threshold are actually good news for many self-employed people, as fewer taxpayers will be impacted at each stage, with the slower rollout giving them more time to get their tax affairs in order.

ITSA for general partnerships

General partnerships – arrangements where 2+ people run a business together, sharing the profits and liabilities – were due to start submitting reports through MTD for ITSA from April 2025. This is now on hold, with no due date currently set for general partnerships to join MTD.

Non-general partnerships – which have a corporate partner rather than only individuals – and limited liability partnerships were both excluded from the previous deadline, and this is likely to remain the case when the government eventually announces a new date.

If this is later than 2027, it could be possible for a self-employed individual to avoid earlier MTD mandates by converting to a general partnership with a family member as a partner, such as a spouse or other relative.

There is also currently no information on Making Tax Digital for Corporation Tax, though a consultation on the matter closed back in 2021. This is unlikely to be mandated before 2026.

Preparing for Making Tax Digital

What all of this means is that for the moment – and for up to 2 more years – Making Tax Digital is primarily only mandated for reporting VAT. However, it’s not a bad idea to sign up early ahead of the 2026 deadline for MTD for ITSA so you can get everything set up stress-free.

It’s important to remember that while this postponement means that a new system of Self-Assessment Tax late penalties won’t come into effect until 2026 either, VAT late penalties already came into force in January 2023, and will not be impacted by the ITSA delays.

Additionally, the basis period reforms have not been postponed. This means that the government’s attempt to align accounting periods to the tax year, which runs from 6th April–5th April, will still go ahead in 2023–2024. This will affect businesses with different accounting periods due to seasonal fluctuations in business or alternative tax management plans.

If you are self-employed, a landlord, or a small business owner, and any of the information in this article will impact you in the coming years, you could benefit from professional assistance. At GBAC, our accountants in Barnsley are trained in tax management and cloud accounting software and would be happy to help you get started with Making Tax Digital.