With all the chaos in the run-up to Christmas, you may have missed the news that one of the key schemes to digitise the UK tax system has been delayed, again. The Government announced last month it had postponed Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) for two years.

The mandatory use of MTD-compatible software will now be phased in from April 2026, instead of April 2024. This latest deferral follows previous postponements of the start date for the programme (it was originally scheduled for rollout in April 2018).

What are the key dates for Making Tax Digital for ITSA?

From April 2026, self-employed people and landlords with an income of more than £50,000 must keep digital records and provide quarterly updates on their income and spending to HMRC through MTD-compatible software. Those with an income of between £30,000 and £50,000 will need to do this from April 2027. But most will be able to join the scheme voluntarily in advance, to give them a chance to avoid common errors and save time managing their tax affairs.

This announcement only relates to MTD for ITSA. Making Tax Digital for VAT has already been put into action.

What else do you need to know?

The Government has announced a review into the needs of smaller businesses, particularly those under the £30,000 income threshold. The aim of the review is to consider how MTD for ITSA can be shaped to meet the needs of these smaller businesses and the best way for them to meet their income tax obligations. It will also inform the approach for any further rollout of MTD for ITSA after April 2027.

Meanwhile, mandation of Making Tax Digital for Income Tax Self-Assessment won’t be widened to general partnerships in 2025 as previously announced. However, the Government said it was still “committed” to extending it to partnerships.

Why is the Government delaying MTD for ITSA?

Before the announcement, MTD for ITSA was mandated from April 2024 for customers with a total gross income over £10,000 from self-employment and property in a tax year, with partnerships mandated from 2025.

Explaining its reasons for the delay, the Government said it acknowledged self-employed people and landlords were facing a “challenging economic environment”.

Victoria Atkins, Financial Secretary to the Treasury, said: “It is right to take the time to work together to maximise the benefits of Making Tax Digital for small businesses by implementing the change gradually. It is important to ensure this works for everyone: taxpayers, tax agents, software developers, as well as HMRC.

“Smaller businesses in particular should be able to experience the benefits of increased digitalisation of income tax in a way which meets their needs. That is why we are also today announcing a review to establish the best way to achieve this.”

Our reaction to the Making Tax Digital update

It’s good news the rollout of Making Tax Digital for Income Tax Self-Assessment has been delayed. But when the Government keeps moving the deadlines, it makes it more challenging for tax agents to get their clients engaged with the new processes for reporting their self-employment and property income.

And I welcome the increase in the threshold for taxpayers who must comply with the new scheme. Because if the Government had kept the threshold at £10,000 (as it had previously proposed), it would have pulled in pretty much all landlords and most small self-employed businesses.

By upping the level, it should remove people who, for example, only rent out their old home and don’t rent properties as a business, or self-employed people who don’t have a very high turnover.

I imagine all these people will eventually be pulled into the new scheme, but it’s hard to expect those who have incidental income to go from keeping bank statements and receipts and reporting once a year to reporting at least four times a year under MTD. It’s sensible to iron out the issues before bringing more people in.

No-nonsense UK tax advice

At Churchill Taxation, we understand complex tax matters and can help you prepare for Making Tax Digital and other changes. Get in touch with our team of tax consultants today on 07813 434195 or stephanie.churchill@churchilltaxation.co.uk

Steph Churchill

Stephanie Churchill

Managing director & co-owner of Churchill Taxation