The Government is taking great strides to digitise as much as they can, The Land Registry is becoming increasingly digitised, right to rent checks are now being carried out online, self assessment income tax will be going the same way. At the moment, though, signing up to income tax on-line self assessment is purely voluntary to help the Government test the system. Originally the Government mandated that anyone with a gross income of over £10,000 from self-employment and property in any one tax year would need to use the digital system from April 2024 onwards, but this has now changed and The Government announced that, to allow a longer period to prepare for Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA), the mandatory use of income tax software would be phased in from April 2026 for those earning more than £50,000 gross income and from April 2027 those earning between £30,000 and £50,000. For anyone earning less than £30,000 self-assessment will carry on the same way as now until after April 2027.
Jim Hara, Chief Executive and First Permanent Secretary, HM Revenue and Customs said “HMRC remains committed to the delivery of Making Tax Digital as a critical part of our strategy for digitalising and modernising the tax system, but we want to make sure we get this right and deliver it effectively. A phased approach to mandating MTD for Income Tax will allow us to work together with our partners to make sure that our self-employed and landlord customers can make the most of the opportunities this will bring.”
How will Making Tax Digital for Income Tax Self-Assessment work?
First anyone needed to register will have to be eligible for that particular phase:
For the first phase in 2026 the following must apply
- Already registered for Self Assessment (you can find out more about registering and sending a Self Assessment tax return here)
- you get income from self-employment or property, or both
- your total qualifying income is more than £50,000
Someone will meet the Making Tax Digital for Income Tax requirements for 6 April 2027, if all of the following apply:
- you are registered for Self Assessment
- you get income from self-employment or property, or both
- your total qualifying income is more than £30,000
To be able to use the system, the person registering must have access to software which works with the Digital self assessment system. The software needs to be able to:
- create and store digital records of each of your business transactions
- send updates of the totals of your business income and expenses every 3 months
- confirm end of period statements
They will also need to make a final declaration. This will be possible either through the compatible software or the HMRC online services account. For landlords who have multiple properties in the UK, these would be classed as one business so would only need setting up once, but income and outgoings for all will need to be logged in the system.
The software needs to be linked to the Government system by entering the Government Gateway user ID and passwords that were issues when first registering for self-assessment.
Every quarter the system will compile a summary of total income and expenditure and the person making the quarterly update will then see an estimate of their tax bill. These updates must be sent within one month of the period end. No adjustments are needed at the quarterly updates, but to make the estimate of tax owed more accurate, this is possible. At the end of the year, as long as all quarterly updates have been sent, the final declaration can be sent. This should have all income, expenditure and adjustments in detail. This has to be completed, as is currently the case by January 31st following the end of the tax year.
Although Making Tax digital was due to start in April 2024, it has now been pushed back to April 2026. The new system will allow linked software to log and submit all income and expenditure at regular intervals during the year to the Government and then compile a final declaration too. The idea is to streamline income tax and also speed the process up. For those who can and want to, they can sign up now to help test the system prior to its formal implementation in April 2026 for those earning more than £50,000.
