The UK government has reopened the pilot scheme for Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA), targeting self-employed businesses, including landlords. This initiative aims to streamline tax reporting and ensure more accurate record-keeping through digital tools.
What is Making Tax Digital?
Making Tax Digital is a government-led initiative to transform the tax system. The goal is to make tax administration more effective, efficient, and easier for taxpayers through digital means. This scheme mandates the use of compatible software to keep digital records and submit updates to HMRC quarterly.
Pilot Scheme Overview
The pilot scheme for MTD was originally introduced but faced delays. The recent reopening provides an opportunity for landlords and self-employed individuals to voluntarily sign up and use digital tools for their tax returns. Participating in the pilot helps HMRC refine the system before it becomes mandatory.
Eligibility for the Pilot Scheme
Landlords and self-employed individuals can voluntarily join the pilot if they meet specific criteria:
- Residency: Must be a UK resident.
- National Insurance: Must have a National Insurance number.
- Tax Records: Should be up to date with no outstanding tax liabilities.
- Self-Assessment History: Must have submitted at least one Self Assessment tax return.
- Accounting Period: Should use an accounting period from 6 April to 5 April or 1 April to 31 March, provided the software supports it.
Certain individuals and scenarios are excluded, such as those with a High Income Child Benefit Charge, partners in partnerships, or those with income from trusts or furnished holiday lets.
Projected Deadlines for Landlords
The mandatory adoption of MTD for ITSA will be phased in, starting from 6 April 2026. Landlords with annual property income above £50,000 will be required to comply first. Those earning between £30,000 and £50,000 will follow from April 2027. The government has provided this timeline to ensure ample preparation time and a smooth transition.
Benefits of Joining the Pilot
Participating in the pilot offers several benefits:
- Early Adoption: Get ahead of the curve by familiarising yourself with the system before it becomes mandatory.
- Simplified Reporting: Use compatible software to streamline record-keeping and tax submissions.
- Support and Feedback: Receive support from HMRC and provide feedback to improve the system.
How to Sign Up
To join the pilot, landlords need to use the online service provided by HMRC. The process involves:
- Preparing Information: Ensure your National Insurance number, business start date, and accounting method are ready.
- Selecting Software: Choose software that is compatible with MTD for ITSA. HMRC provides a list of approved software providers.
- Signing Up: Use your Government Gateway user ID and password to sign up through the HMRC website.
After Signing Up
Once signed up, you will need to maintain digital records of your business income and expenses and submit quarterly updates. A final year-end submission will be required by 31 January of the following year. The new penalties for missing deadlines will apply, so it’s crucial to stay organised.
At Northwood, we understand the complexities of managing property income and staying compliant with tax regulations. If you’re a landlord, now might be a good time to consider the benefits of Making Tax Digital.
