Making Tax Digital for the Self-Employed

Could you be affected by the introduction of MTD for IT?

MTD for IT will be introduced in two phases:

• From 6 April 2026, a self-employed individual will be required to register for MTD for IT where their turnover is more than £50,000 per annum.
• From 6 April 2027, self-employed individuals with turnover of more than £30,000 per annum will be required to register for MTD for IT.

In the Autumn Budget 2024, it was announced that a third phase would be introduced where landlords with turnover of £20,000 per annum will also be required to join MTD for IT. No date has yet been confirmed for this third phase but it will come into force before the end of this Parliament, this being July 2029.

If you are also in receipt of income from property, you will also be subject to a further set of record keeping and reporting obligations.

Receipts from all relevant businesses are added together which will determine the requirement to register for MTD for IT.

For example, an individual who has trading receipts of £30,000 and gross rental income of £25,000 will be required to join MTD for IT as the combined amount exceeds £50,000. Therefore, reporting would then be required for both your self-employment and rental income.

Requirements under MTD for IT

As well as maintaining digital records, self-employed individuals whose income will require them to register for MTD will also be subject to file quarterly reports to HMRC of income and expenses as well as submitting a final declaration.

Quarterly reporting

Every quarter, you will need to provide details of the gross income received as well as expenditure incurred during that period.

Where there is more than one business, each business will be required to have its own digital record and submit a separate quarterly report.

Expenses that need to be reported are the same as those currently reported annually in your self-assessment tax return, such as cost of goods bought for resale or goods used, wages, car, van and travel expenses, rent, rates, power and insurance costs, repairs and maintenance, office costs, etc.

Quarterly reporting must then be submitted to HMRC by the seventh of the month following the end of the quarter period (i.e. for the first submission due in 2026/27, this would be 7 August 2026 for the first quarter to either 5 July or 30 June 2026).

The taxable profits will then need to be finalised to include tax and accounting adjustments for items such as capital allowances, depreciation etc., along with any other tax information such as employment, investment income, capital gains etc. A final declaration must be submitted to HMRC by 31 January, following the end of the tax year (this being the same as the current Self-Assessment tax return filing deadline).

Being notified of the requirement to join MTD for IT

Individuals required to join MTD for IT will be notified in writing by HMRC following submission of their 2024/25 tax return.

Exclusions

Individuals can apply for a digitally excluded exemption from MTD for IT for those whose age, disability or location would not be reasonable. The exemption can also exclude those who object to using computers on religious grounds.

Actions to take

• Update your processes to check you meet the requirement of keeping digital records.
• Put a plan in place to be able to do quarterly reporting.
• Consider with Crowe software providers, if you don’t already have one.

For more information about the issues raised or to discuss your individual circumstances get in touch with your usual Crowe contact.