Making Tax Digital – Femi O. Ogunshakin

Making Tax Digital expands

Written by admin on April 16, 2025. Posted in Making Tax Digital, self-assessment, Self-Employed. No Comments on Making Tax Digital expands

Self-employed people and landlords with an income between £20,000 and £30,000 will be required to use Making Tax Digital (MTD) from 6 April 2028. This will bring a further 900,000 low-income taxpayers under the MTD regime.

HMRC previously stated that those with an income between £20,000 and £30,000 would be mandated before the end of this parliament. The specific start date of April 2028 is therefore earlier than expected.

Timing

Taxpayers with an income of more than £50,000 will be mandated from 6 April 2026 for the 2026/27 tax year. The deadline for finalising MTD obligations for this year is not until 31 January 2028, which doesn’t give HMRC much time to sort out any problems before the new cohort of taxpayers join the system in April 2028. At present:

Unrepresented taxpayers with an income between £20,000 and £30,000 are going to need software that is either free or low-cost.
The availability of such software is quite limited, although more options might become available by April 2028.

The relevant income for meeting the £20,000 threshold will be that for the 2026/27 tax year.

In the future, the MTD threshold might be lowered again as the government has stated there are plans to expand the regime to include those with an income below £20,000.

Self assessment

HMRC has also announced that the year-end self assessment tax return must be submitted using MTD or other suitable software. It was previously thought that taxpayers would be able to use HMRC’s online service, but this is not going to be the case.

When selecting suitable MTD software, it is important to make sure it can also deal with the tax return submission. If the MTD software cannot do this, a different software package will be required to complete the year-end requirement.

HMRC’s list of software that’s compatible with MTD for income tax can be found here.

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Making Tax Digital Expands

Written by admin on April 3, 2025. Posted in Landlord, Making Tax Digital, MTD, self-assessment. No Comments on Making Tax Digital Expands

Timing

Unrepresented taxpayers with an income between £20,000 and £30,000 are going to need software that is either free or low-cost.
The availability of such software is quite limited, although more options might become available by April 2028.

The relevant income for meeting the £20,000 threshold will be that for the 2026/27 tax year.

In the future, the MTD threshold might be lowered again as the government has stated there are plans to expand the regime to include those with an income below £20,000.

Self assessment

HMRC’s list of software that’s compatible with MTD for income tax can be found here.

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What’s new on MTD?

Written by admin on March 6, 2025. Posted in Landlord, Making Tax Digital, MTD, self-assessment, Self-Employed. No Comments on What’s new on MTD?

A busy start for HMRC on Making Tax Digital (MTD) for 2025 with focus falling on new guidance for three-line accounts and joint property income.

Self-employed individuals and landlords with an annual income of more than £50,000 will start using MTD from 6 April 2026. The £50,000 test is based on overall self-employed and property income for the current 2024/25 tax year.

Three-line accounts

HMRC has confirmed a three-line account approach:

Currently, when completing a self-assessment tax return, self-employed individuals and landlords whose income from either self-employment or property is below the VAT registration threshold of £90,000, need only enter one figure for total expenses.
Therefore, keeping digital records for MTD should be a matter of classifying amounts as either income or expense.
Each quarter, only the total income and expense figures will be submitted to HMRC.

The one exception is when a landlord incurs residential finance costs, which must always be recorded separately because they are not a deductible expense.

Joint property income

Joint property owners only need to record their share of the property’s income and expenses. If a landlord chooses to, they can simply record income on a quarterly basis and expenses on an annual basis at the end of the tax year. Individual transactions will not have to be captured; only a total figure for each income and expense category.

If the joint property owner is eligible to use a three-line account approach, it gets even simpler. A total quarterly income figure and a total expenses figure at the year end. Recording and reporting will then be:

Each quarter: record a single income figure and submit to HMRC.
End of the tax year: record a total figure for expenses and report through the end-of-year finalisation process.

HMRC’s guidance on the categories of income and expenses that need to be included in quarterly updates (if a three-line account approach is not used) can be found here.

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Making Tax Digital latest

Written by admin on February 9, 2025. Posted in High Income Child Benefit Charge, Making Tax Digital, MTD. No Comments on Making Tax Digital latest

Although Making Tax Digital (MTD) for the self-employed and landlords is still more than a year away, the October 2024 Budget further extended its scope with the announcement that it will apply to those with income between £20,000 and £30,000 before the end of this parliament.

MTD timeline

With the latest announcement, the MTD timeline for the self-employed and landlords now looks like this:

6 April 2026: Those with an income of more than £50,000 for the 2024/25 tax year.
6 April 2027: Those with an income of between £30,000 and £50,000 for the 2025/26 tax year.
Before the end of this parliament: Those with an income of between £20,000 and £30,000 for the tax year prior to the year of mandation.

It is very important to appreciate that the various mandation levels are based on gross income, and not on net profit after expenses have been deducted.

More significant than what was actually announced was what was left unsaid: that the government appears to be fully committed to the implementation of MTD from April 2026 without any further postponement.

Outstanding issues

One of the main concerns is that the testing of MTD by HMRC is still relatively small scale. Until recently, there was a lack of compatible software and a long list of exclusions of those who cannot currently sign up to use MTD voluntarily, e.g.:

those paying the high income child benefit charge;
anyone claiming the marriage allowance; and
those with income from a trust or jointly owned property.

There is still no confirmation on how MTD will work in practice for those with jointly owned property. At issue is that each owner will be expected to keep their own digital records and submit separate quarterly updates – something that will be impractical in many cases.

HMRC’s guidance on if and when you will need to use Making Tax Digital can be found here.

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Making Tax Digital Update: Small Business Review

Written by admin on February 7, 2024. Posted in Making Tax Digital, MTD, self-assessment. No Comments on Making Tax Digital Update: Small Business Review

The outcome from the Making Tax Digital (MTD) small business review is that MTD for income tax self-assessment (ITSA) will not be extended to those earning under £30,000 for the foreseeable future.

MTD ITSA for the self-employed and landlords is to be introduced from April 2026, with the initial mandate applying to those with income over £50,000. Those with income between £30,000 and £50,000 are set to join from April 2027.

The government said it would review the needs of smaller businesses – those with income under the £30,000 threshold – before extending MTD further. The latest announcement means there will be no extension, although the decision will be kept under review.

There is no set mandation date for general partnerships (those with individuals), non-general partnerships (those with a corporate partner) and limited liability partnerships.

An important point to note is that the £30,000 and £50,000 limits apply to total self-employment and property income, and not to the profits actually made.

Reporting

Some reporting changes have also been announced:

Year-end reporting was originally going to consist of two separate steps – an end of period statement and a final declaration. This would have caused considerable confusion, so there will now be just the one final declaration; and
Quarterly reports are now to be cumulative, so any errors will simply be corrected on the next report – rather than the previous requirement to resubmit past quarters.

Ongoing concerns

Despite the latest attempt to simplify the MTD process, there are still concerns that HMRC has simply lost sight of the needs of taxpayers. A recent House of Commons committee report criticised the project’s spiralling costs, design flaws and missed deadlines.

The report recommends HMRC research what business taxpayers would actually find most helpful, and to take into account the substantial costs of implementing MTD.

HMRC’s guide to using MTD ITSA can be found here.

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Cash basis to become default

Written by admin on January 4, 2024. Posted in Income Tax, Making Tax Digital, self-assessment, Self-Employed. No Comments on Cash basis to become default

From 2024/25, restrictions to the cash basis will be removed, making it the default method for calculating trading profit for the self-employed and most partnerships.

The accruals basis is currently the default, with a business having to opt in to use the cash basis. In future, a business will need to opt out of the cash basis if it wants to use the accruals basis.

Restrictions removed

A business, regardless of size, will be able to use the cash basis once the £150,000 turnover restriction has been removed. The removal of two other restrictions will mean there are no longer any obstacles to – otherwise qualifying – businesses choosing to use the cash basis:

Interest costs will in future be fully deductible. Currently, there is a maximum deduction of £500.
Losses incurred under the cash basis will be relievable in the same way as accruals basis losses. Currently, a cash basis loss cannot be relieved against other income or carried back.

When moving from the accruals basis to the cash basis, a number of adjustments may be necessary to avoid double counting or items being omitted.

Pros and cons

The cash basis removes complexities such as accruals and most capital allowances, though it will be unsuitable for some businesses, especially larger ones.

The cash basis does mean it is quite easy to calculate trading profit by, for example, extracting information from easily accessible documents, such as bank statements – so there may be less need for a bookkeeper.
It is also easier to legally manipulate a period’s trading profit. For example, paying suppliers early towards the end of a period will reduce profit.

The accruals basis, however, is a more accurate reflection of a period’s trading profit, so banks and other financial institutions may insist on this basis being used.

HMRC’s guide to calculating trading profits, notably section 3 on moving to the cash basis, can be found here.

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Tax gap at all-time low

Written by admin on July 27, 2023. Posted in Making Tax Digital, MTD, Tax. No Comments on Tax gap at all-time low

The tax gap is the difference between the amount of tax that should, in theory, be paid to HMRC, and what is actually paid. For 2021/22, the gap was at an all-time low of 4.8% (or £35.8 billion), although in monetary terms the gap increased by some £7 billion from 2020/21.

Small businesses

Recently published figures from HMRC show that small businesses now account for the largest share of the tax gap, at 56% of the total or just over £20 billion. This percentage has grown steadily from 40% in 2017/18. By comparison, the share for mid-sized and large businesses has fallen from 18% to 11% over the same period.

There isn’t sufficient information to understand what is happening here, but there are a couple of possibilities:

Having endured the challenges of the Covid-19 pandemic and now facing an equally tough economic climate, small businesses may be under-declaring income or, more likely given most sales are now done electronically, overclaiming on expense deductions.
At the same time, HMRC now lacks the resources to carry out extensive tax investigations.

And, of course, having an extremely complex tax system doesn’t help.

The whole concept of the tax gap has been subject to criticism, especially as HMRC does not explain how figures are calculated.

Making Tax Digital (MTD)

HMRC has been accused of using the tax gap to push their own agenda, in particular, making a case for MTD.

MTD for the self-employed and landlords is now not set to start until April 2026. MTD for VAT has been introduced in stages since April 2019, with virtually all VAT-registered business now included. The tax gap for VAT, although showing some improvement since 2018/19, doesn’t exactly support the need for MTD – the VAT gap fell from 6.4% in 2018/19 to 5.4% in 2021/22.

HMRC’s press release on the latest tax gap figures, along with more detailed information, can be found here.

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The demise of paper tax returns

Written by admin on May 8, 2023. Posted in Benefits, Capital Gains Tax, Making Tax Digital, self-assessment. No Comments on The demise of paper tax returns

More than 12 million taxpayers file self-assessment tax returns, but less than 3% do so using a paper return. Given this low demand, HMRC is reviewing the current paper filing service.

HMRC stopped sending out paper tax returns three years ago, with any taxpayer wishing to file by paper required to download a blank version of the form. That move brought a further 3% of taxpayers to the online service. HMRC has now announced that self-assessment tax returns will not be available to download for the 2022/23 tax year.

Alternatives

Subject to a limited exception, anyone who still wants to file offline will have to obtain a tax return form by phoning HMRC.

The limited exception is for visually impaired taxpayers and those aged 70 or over who have not previously submitted online. HMRC will continue sending them paper returns to complete.
As an alternative to contacting HMRC, a blank tax return can be printed using commercial software.

There are some taxpayers who, because of the complex tax calculations involved, simply cannot file online. This is the case even if commercial software is used, which means they will have to print their completed tax return and file it by post.

Online filing

HMRC has written to some 135,000 taxpayers who file on paper to encourage them to complete returns online in the future. In many cases, this may now be the most sensible option, and there is a wide range of commercial low-cost software available if anyone does not wish to use HMRC’s offering.

Filing online has two distinct advantages:

Not having to use the postal system when a return might be lost; HMRC will sometimes deny having received a mailed return even when there is a record of delivery.
An additional three months to file each year – the online filing deadline being 31 January following the tax year, rather than 31 October.

Capital gains tax (CGT)

Going somewhat in the opposite direction, HMRC has made a downloadable version of its CGT UK property return available on a four-month trial basis. The intention is that the downloadable form can be used by those taxpayers who cannot report and pay tax using the online service.

HMRC guidance on self-assessment tax returns can be found here.

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21st century Revenue – HMRC’s app and new texting service

Written by admin on March 1, 2023. Posted in Income Tax, Making Tax Digital, self-assessment. No Comments on 21st century Revenue – HMRC’s app and new texting service

HMRC’s app was launched a year ago and is gaining in popularity as it is being used to pay self-assessment tax bills. A more recent HMRC innovation is a new service for texting replies to taxpayers who make contact by mobile phone.

Using the app

The HMRC app can be downloaded from either the App Store (Apple devices) or the Google Play Store (Android devices). It is then just a matter of:

Following the instructions to complete the app settings; and
Signing in using your Government Gateway (only required for first-time use).

In addition to paying self-assessment tax bills, the HMRC app can be used to claim a refund if too much tax has been paid. Other uses include:

Tax credits: Changes can be reported, and the annual renewal completed. The app shows the amount of tax credit payments and when they will be made.
References: You can check your tax code and easily find your national insurance (NI) number and unique taxpayer reference (UTR).
Update: You can let HMRC know if you change address.
Tax details: You can get an estimate of tax payable and use HMRC’s tax calculator to work out take-home pay after income tax and national insurance contributions.

Despite some negative reviews, the HMRC app currently has a 4.5 rating on the App Store, and a 4.7 rating on the Google Play Store.

New texting service

Only launched 19 January, HMRC is trialling the sending of text messages to taxpayers who call their helplines about a routine matter that could be better resolved using HMRC’s digital services.

Although some callers will be given the choice of holding for an adviser, other calls will be automatically disconnected after a message explaining a text message has been sent. The message might point towards information on the gov.uk website, which can help with the enquiry, or to the webchat service.

The HMRC app can be found here for Apple users and here for Android users.

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Making Tax Digital delayed once more

Written by admin on January 27, 2023. Posted in Making Tax Digital, MTD, Tax. No Comments on Making Tax Digital delayed once more

With the self-employed and landlords facing a challenging economic environment, the government has again delayed the introduction of the Making Tax Digital (MTD) scheme for income tax self-assessment (ITSA) – this time by two years until April 2026.

Although the introduction of MTD ITSA prompted the basis period reform, no corresponding postponement for this has been announced. The tax year 2023/24 is therefore still the transitional year.

Income reporting threshold

Along with the two-year delay, the minimum income reporting threshold has also been raised.

Rather than an income threshold of £10,000, MTD ITSA will now initially only be mandated – from April 2026 – for a self-employed individual or landlord who has income of more than £50,000.
Those with income between £30,000 and £50,000 will join a year later from April 2027.
The government will review the needs of smaller businesses – particularly those with income under the £30,000 threshold – before making further decisions.

Given the low level of awareness of the MTD reporting requirements, the entry point U-turn will be widely welcomed, especially by landlords for whom MTD will have few benefits. Previously, the introduction of MTD ITSA was going to impact on some four million taxpayers, but only 700,000 will now be involved from April 2026, with a further 900,000 included a year later.

Partnerships and companies

General partnerships (those with only individuals) were previously set to start reporting under MTD ITSA from April 2025.

With the revised timetable, there is no set mandation date for general partnerships.
Non-general partnerships (such as those with a corporate partner) and limited liability partnerships were previously excluded from the MTD timeline, and this remains the case.

A self-employed individual who wishes to avoid MTD reporting requirements can easily (at least initially) do so by converting to a partnership with the addition of a spouse, partner or other family member as a partner.

The government announcement makes no mention of MTD for corporation tax, so this is unlikely to be introduced any time soon.

Information for those who wish to voluntarily sign up for MTD ITSA before 6 April 2026 can be found here.

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