HM Revenue and Customs (HMRC) are changing the way some sole traders and landlords need to record and report their income and expenses.
The introduction of Making Tax Digital for Income Tax
‘Making Tax Digital for Income Tax’ (MTDIT) is being introduced in phases beginning on 6 April 2026 and it will eventually affect sole traders and landlords with a total income from self-employment and property of more than £20,000. Depending on their annual gross income, sole traders and landlords will be required to start using the service from the following dates:
- from 6 April 2026 for those with annual gross income of over £50,000;
- from 6 April 2027 for those with annual gross income of over £30,000; and
- from 6 April 2028 for those with annual gross income of over £20,000.
HMRC plan to review all Self Assessment tax returns filed for the 2024/25 tax year and contact those who are in scope of the MTDIT regime.
New requirements
Those who are in scope of the MTDIT regime will be required to maintain digital business records and submit quarterly updates to HMRC to declare business/property income and expenses. HMRC are not producing their own software to maintain digital records so those in scope of the MTDIT regime will need to purchase a specialised software package or maintain spreadsheets.
Exemptions
The following people will be automatically exempt from the MDTIT regime:
- trustees, including charitable trustees or trustees or a non-registered pension scheme;
- people who do not have a National Insurance number on 31 January before the start of the tax year;
- the personal representative(s) of someone who has died;
- Lloyd’s members, in relation to their underwriting business; and
- non-resident companies.
People who believe that they are digitally excluded can also apply for an exemption. For example, those for whom it is not practical to use software to keep digital records because of age, disability, location, religious belief or another reason.
Application to trusts that hold property
Persons who are acting as trustees will not be required to use the MTDIT service as they are automatically exempt under the legislation. Trusts that hold rental property and have an annual income of over £20,000 will therefore not be within scope of MTDIT. The trustees will not be required to maintain digital business records or submit quarterly updates to HMRC. Trustees will still be required to submit Self Assessment tax returns in the usual way.
Please contact Catherine Pugsley, Elizabeth Cooper or Hannah Fingleton in our Private Client Team on 020 7222 5381 to discuss this further.