MTD income tax’s impact on unincorporated businesses and landlords
When MTD income tax becomes mandatory, taxpayers within scope will be required to:
- maintain digital accounting records in a software product or spreadsheet. Maintaining paper records will no longer meet the legislative requirements; and
- submit quarterly updates to HMRC within just over a month of the end of the quarter and a year-end tax return after the end of the tax year. The submissions must be made using a functional compatible software product that can access HMRC’s application program interfaces (API) platform.
Taxpayers within scope will need to acquire a suitable commercial software product or appoint an agent to submit information to HMRC on their behalf. HMRC’s paper and online self assessment (SA) tax return will remain available only to taxpayers outside the scope of MTD income tax. For those outside MTD income tax, the SA tax return is likely to be replaced with a new (but similar) system in due course.
MTD income tax will not change:
- the underlying income tax rules (other than in relation to record keeping);
- the amount of detail submitted to HMRC which remains the same as the current SA tax return (although more detailed records will need to be kept and updates will need to be submitted quarterly); or
- the current filing and payment deadlines for income tax.
Who is affected?
MTD income tax requirements will apply to those who receive gross income from self-employment and/or property over a certain threshold. From April 2026 those with gross income of over £50,000 are mandated, from April 2027 those over £30,000 are mandated and from April 2028 those over £20,000 will be mandated. Those who complete the residence, remittance basis etc (SA109) pages of the SA return will not be required to use MTD income tax until at least April 2027.
This threshold will be applied to the total turnover/gross income from all sources of self-employment and income from property. It will be applied against specific boxes on the SA return (listed below). Anything not included in these boxes will not count towards the threshold for joining MTD income tax.
When determining whether the turnover threshold is exceeded, if the relevant reference period is less than 12 months the qualifying income must be adjusted proportionately on a time or other just and reasonable basis.