By Luke Photi, White Hart Associates Practice Manager and Head of MTD
The government’s plans to digitise the tax system are set to have a big impact on sole traders, self-employed businesses and landlords in the UK and overseas. We assess what the changes mean for them.
Her Majesty’s Revenue and Customs (HMRC) is rolling out the next phase of its plans to ensure everyone completes their accounts electronically.
Making Tax Digital (MTD) for income tax self-assessment (ITSA) is a bit of a mouthful, but it essentially means more people and businesses will have to change the way they do their accounts.
Who will be affected and when?
From April 2026
- Sole traders and self-employed businesses with Gross income (turnover) greater than £50,000 per year.
- Landlords (UK and overseas) with Gross rental income greater than £50,000 per year.
The thresholds are for a combined turnover/gross income, so an individual who has self-employment turnover below £50,000 per year but also has gross property income that, in total, pushes them above that figure, would have to comply.
From April 2027
Landlords, sole traders and self-employed businesses with an annual gross income between £30,000 and £50,000 will be included in the scheme.
What will change?
Those affected will need to digitally reconcile, record and submit income tax returns and self-assessments on a quarterly, instead of annual, basis.
For each trade, landlords and the self-employed will need to submit four quarterly updates on their income and expenditure and a final declaration, with full payment, by January 31.
A big change for many taxpayers is that submissions will need to be made through MTD-compliant software.
For landlords with joint-owned properties, there are some easements in place to make record keeping and submissions more straightforward, and we can advise clients directly on this.
Currently the deadlines for payments will remain unchanged and Value Added Tax (VAT) returns will still be filed separately under MTD VAT.
Who is exempt from the roll-out?
Other types of partnerships, such as limited liability partnerships (LLPs), with only individuals as partners, are not affected by the current changes. These include trusts and estates, trustees of registered pensions schemes and companies not resident in the UK.
Start digitising your records
HMRC have delayed MTD for ITSA several times already, but this will not continue indefinitely, and our team strongly recommend starting your journey to digitising your record keeping, if you haven’t done so already.
There are several cloud accounting solutions, such as Xero, that you can adopt now for you and your business. There are many benefits for using cloud accounting software to keep your records up to date, including:
- Data about your sales or income and purchases can flow straight from your bank to your books so you don’t spend hours transcribing it.
- You can see your current financial position at any time.
- Multi-user access makes it easy to collaborate online with your team and accountancy advisors.
- There’s nothing to install or update as it is online software, and all your data is backed up automatically.
- You can set up a dashboard showing important financial information, such as who owes you money, what bills are due and your cashflow position.
Next steps
We recommend following this 5-step process to ensure you are ready for the next stage of the government’s plan to digitise the tax system.
Step 1 – Identify your position
Clarify whether you are affected by MTD for ITSA and which of the deadlines apply to you or your business.
Step 2 – Consider exemptions
Apply for an exemption if you are eligible and do not wish to comply. If you already have an exemption from MTD for VAT, this will flow through to other taxes automatically.
Step 3 – Set up a separate bank account
Many self-employed people run their businesses from a personal account, but our suggestion is to separate your business banking from your personal banking, if you haven’t already done so. This will avoid having to provide HMRC or your accountant with all your personal transactions mixed in with business records. There are many suitable bank accounts for small and medium-sized businesses, offered by banks such as Tide and Starling.
Step 4 – Make sure your software is compliant
If you’re using digital software already, contact the company’s support team to see if they will be MTD compatible, and contact us if you need further guidance.
Step 5 – Contact us for support
We are the experts in MTD, so please do not hesitate to contact our team to support you through this process. The infrastructure to comply with the MTD for ITSA needs to be in place well before the roll out date of April 2026. For taxpayers who are to be mandated from April 2026, will receive written confirmation during the month of April 2025.
White Hart Associates are specialist accountants for the travel industry. Visit whitehartassociates.com or contact 0208 878 8383 for more information.
