Undoubtedly, MTD for income tax UK is transforming how most sole traders and landlords report their incomes. Now, this sudden shift from annual taxation to digital updates may cause confusions.
This is why we brought this guide explaining how it functions and who is eligible for it. Also, how does HMRC act on it?
How Self Assessment Works Today
Right now, HMRC is using Self Assessment systems to report untaxed income sources. Likewise, every year, you submit a return. Including the Incomes from property, dividends, capital gains tax and self-employment activities. Due to HMRC self-assessment rules, it is mandatory that anyone with such types of income report it.
What Changes Under Making Tax Digital?
The single annual return policies are being replaced by digital records and quarterly updates under the making tax digital requirements. That’s why, you must:
- Keep your income and expense records in compliant software.
- Send four updates at an interval every year.
- Submit a final declaration at the end of the year.
Now, this is a new process known as digital tax returns UK.
Not sure which system applies to you or need help with quarterly updates? Our online Tax Consultant experts can guide you through MTD compliance and handle all your digital reporting requirements.
Who Must Move File MTD and When?
Eventually, the HMRC is rolling out the regulations in phases. If your combined sole trader and property income totals to:
- Over £50,000 from the year of 2026 April onwards.
- Then, over £30,000 from 2027 April.
- And over £20,000 from 2028 post-April.
Who Is Exempt?
It is not necessary for some people to join MTD!
Exempt groups include partnerships, trusts, non-resident businesses, foster carers, and those without a UK National Insurance number.
What Counts as Qualifying Income?
Some of the crucial qualifying income sources include:
- UK sole trader incomes
- Property incomes established in UK
- Individual shares, if you own the property jointly with someone
If you're a landlord trying to calculate your qualifying property income, our comprehensive checklist can help: Rental Income Tax UK – A Checklist for Landlords.
So, If these add up to the above requirements, then opting for MTD becomes absolutely mandatory.
Expanding a Business
Now, you won't immediately qualify for MTD for income tax UK if you launch a new company. Only after following the filing of your first tax return, HMRC verifies your qualifying incomes.
Can You Leave MTD?
Yes, you can make an exit after your qualifying income stays below the threshold of three full tax years. Also, if you plan to shut down your business. But, the HMRC does not allow frequent switching.
For the latest updates and official timelines, check HMRC's Making Tax Digital for Income Tax guidance.
Conclusion
Summing up, MTD for income tax UK is bringing a significant change in UK’s tax filing practices. This is why it is crucial to understand when to switch and what qualifies you for it.
Besides, using incorrect systems or filing later can result in heavy penalties. But, professional assistance can help you in the long run. It will help you in assessing if you need MTD or self assessment.
So, you may consider reaching out to TaxSimba to properly file your digital tax returns UK.