There are lots of changes for people who are self-employed and landlords and we are now in the transition period of HMRC making tax digital. Joining this year and getting your finances into shape will save a lot of problems in the long run as everything will be online with no paper returns.
Making Tax Digital for Income Tax:
If you are self-employed or a landlord, you need to follow the requirements for Making Tax Digital for Income Tax from:
- 6 April 2026 if you have an annual business or property income of more than £50,000
- April 2027 if you have an annual business or property income of more than £30,000
What does it mean for me? How is it different?
Making Tax Digital (MTD) is a significant change in the UK tax system.
If you are self-employed or a landlord and meet the criteria above you will not be able to keep your bookkeeping in paper form, you will need to keep Digital records and make Quarterly updates to HMRC.
What are digital records?
Under MTD for Income tax the self-employed and landlord will be required to maintain digital records of your business or property income throughout the year, compatible software will need to be used to record transactions, expenses, and income.
This is different from the traditional method where you could file paper returns or use old VAT accounts online.
What are the reporting requirements?
Quarterly Updates
MTD brings the tax system closer to real-time and a key aspect of MTD ITSA is the requirement for Quarterly reporting.
Every quarter, a summary of your income and expenses will need to be reported to HMRC using the compatible software.
These updates are not as detailed as a full self-assessment tax return but provide essential information.
Annual Finalisation:
At the end of the tax year (usually by 31 January), you are required to finalise your tax affairs.
This is when you will need to submit an annual declaration that includes all your income sources (not just business or property income).
This process ensures that your tax liability is accurately calculated.
Why the change?
The Reduction of Errors:
Digital records tend to be less error-prone than manual ones. This can help reduce the amount of tax lost to avoidable errors.
Integration with Business Processes:
MTD allows customers to integrate tax management with a range of business processes through software. With real time bookkeeping a business owner can see what is happening in their business now rather than reviewing historical data. This can contribute to wider productivity gains for businesses.
What happens if you don’t report correctly under MTD?
Late submission penalty
A penalty of £100 becomes chargeable as soon as a return is late.
A £10 daily penalty becomes chargeable when a return remains outstanding 3 months after the deadline.
A penalty of £300 or 5% of the tax liability (whichever is greater) becomes chargeable where a return is outstanding 6 months after the deadline and again at 12 months.
A higher penalty can be charged for 12 months’ delay if the taxpayer deliberately withholds information by not submitting the return.
Late payment penalty
Financial penalties are charged at regular intervals:
- at 1 month late, 5% of unpaid tax is charged.
- at 6 months late, 5% of tax still unpaid is levied as a penalty.
- at 12 months late, 5% of tax still unpaid is applied as a penalty
What do you need to do?
If you are currently keeping paper records or recording on a spreadsheet, we recommend moving to Xero cloud accounting now to ensure that you are all set up and familiar with the software well in advance for the commencement of the scheme.
There are various different plans available which we can help you set up and provide training so that you are good to go.
If you would like to discuss this, we can help you through this period to make sure everything is setup as it should be. Please contact us and we will get back to you shortly.
