HMRC Making Tax Digital For ITSA

Making Tax Digital (MTD) is a plan introduced by HMRC with a view to transform tax system to a fully digital form. MTD has been established by the HMRC with an intention to make tax reporting efficient and convenient. It could enable taxpayers meet their obligations regarding taxation more effectively and it will automate the taxation system. It could reduce overheads being faced by HMRC in managing the system.

The date of implementation of MTD for Income Tax Self Assessment is April 2026. The new system is being termed most significant with regard to the changes in the UK tax system. Making Tax Digital is applicable to all landlords, self-employed and partnerships whose yearly gross income from those sources combined is more than £50,000. Retention of all transaction records digitally and use of a specific software to submit returns to HMRC are the key requirements for this system.

In fact, HMRC wants to ensure precision between accounting records of a taxpayer and tax returns. The accuracy of records, as HMRC is of the view, will result in a reduction in tax errors and efficient data submission thereon.

With the new HMRC MTD system, there will be digital recording of all transactions. It will be ensured that return is submitted quarterly by using specific MTD compatible software. Bookkeeping records will be electronically linked to MTD servers of HMRC with the help of these software. The Landlords will have to purchase this software as their own.

All landlords deriving a gross income exceeding £50,000 yearly are bound to comply with the HMRC MTD. The £50,000 income is that income which is generated from all properties before any deductions are made. Individuals are exempt from MTD subject to the followings and also if an individual applies and is granted exemption,

- If someone is reasonably not capable of using digital tools for business records retention on account of some disability, age factor, distant location or any other justifiable reason.

- If a business is being run fully, by a religious society member or is being run by a person whose beliefs are not compatible with using electronic communication or retention records digitally.

In case any of the above mentioned applies, then the individual must apply to HMRC for an exemption.

- The current payment deadlines set for income tax
- The implicit tax rules
- The level of information details and headings would remain unchanged.

It has been made compulsory for taxpayers to submit quarterly ‘updates’ instead of submitting an annual tax return being practised previously. The time window for submission will be 30 days after the end of the quarter.

Along with the quarterly accounts’ submission, it has been made necessary to submit an ‘end of period statement’ by 31st January after the end of year with a view to affirm the accuracy of data entered in the previous submission. Eventually, there would be a Finalised statement to get all updates together to calculate the final tax liability thereon.

There would be five submissions yearly. There will be four quarterly plus the one financial year return submission. As per regulations mentioned in MTD an individual must submit separately quarterly updates in accordance with the type and category of a property businesses as explained below.

- Updates regarding MTD on quarterly basis for residential properties held. There will be 4 Number of submissions.
- Updates regarding MTD on quarterly basis for furnished holiday lets. There will be 4 Number of submissions.
- Updates regarding MTD on quarterly basis for self-employed trade. There will be 4 Number of submissions.
- There will be an End of period statement against above mentioned businesses.
- There will be 4 returns regarding VAT. There will be 4 Number of submissions.

At the end a finalisation statement submission.

Taxpayers will be able to view and manage tax information with the help of a digital online account i.e. Government Gateway etc.

Although HMRC MTD system would not require submit actual invoices in each return, yet all this information must be kept. Taxpayers will be required to utilize such software as are capable to scan receipts or invoices in order details auto load into the software. Application of this procedure would result in least errors or mistakes in submissions on quarterly basis.

There is no plan to introduce any changes in current tax payment dates by HMRC. The dates would remain as such 31st January and 31st July. However, a business will be allowed to make payments on voluntary basis against tax liabilities.

A point system is being introduced by HMRC in case of late submissions. If a submission is missed after deadline one point will incur. The taxpayer would be notified by HMRC about this incurring point.

The threshold of number of points will depend on return submission frequency. A penalty of £200 will be imposed on reaching certain number of points. The point threshold will be four in twelve months in case of self-assessment taxpayers, including landlords.

On reaching threshold mentioned above, the taxpayer would be required to produce previous 24 months up to date.

If taxpayer is required to submit landlord and self-employed submissions where gross income derived from both is more than £50,000, then points would be treated separately for different submissions obligations.

Because of implementation of point system, there will be no auto penalty imposed on taxpayers. Instead, each failure will attract a point in the following ways:

- Depositing outstanding tax within 15 days after the due date will attract no penalty
- Depositing outstanding tax after 15 days of due date will attract the first penalty of 2%
- Now if tax still remains unpaid even after 31 days the penalty will increase to 4%