April 2, 2025

Making Tax Digital for Income Tax (MTD IT) – Obligation confirmed from April 2026 

What is it and why is it happening?

Making Tax Digital for Income Tax (MTD IT) aims to reduce the tax gap by enabling more accurate and timely submissions through digital tools. It is reported that every year, errors and poor record-keeping practices contribute to the UK’s tax gap. By requiring businesses to keep digital records, HMRC is bringing all tax processes into one digital environment, making it easier for agents to manage client tax affairs under a single system.

Who is impacted?

Individuals with combined income from self-employment and/or property over the relevant thresholds will need to comply with the new rules.
MTD IT starts in April 2026 for those with qualifying income over £50,000.

What is ‘qualifying income’?

The term qualifying income refers to your gross income, before expenses and tax.

When do the changes come into effect?

April 2026 – Mandatory for individuals with combined gross income over £50,000 from self-employment and/or property.
April 2027 – Mandatory for individuals with combined gross income over £30,000 from self-employment and/or property.
April 2028 – Mandatory for individuals with combined gross income over £20,000 from self-employment and/or property.

What are the changes?

If you meet the criteria, three main areas must be complied with are:
1. Quarterly submissions – you must submit quarterly income and expenditure submissions to HMRC
2. Digital record keeping – HMRC requires that you maintain digital records of business income and expenses
3. Use MTD-Compliant software – You must make quarterly submissions using approved MTD software. You will no longer be able to file on paper or solely through HMRC online tax return.

How do I know if I am over the threshold?

The final status for each tax year will be based on the tax return information due 31st Jan before the 6th April start date. Therefore, any requirement to comply with MTD IT from April 2026 will be based on the 24/25 tax return information (6th April 2024 – 5th April 2025), due for submission by 31 January 2026. This means the submission of your 24/25 return in January 2026 will identify for certain whether you meet the criteria. HMRC will also be contacting individuals directly from April 2025 who currently have qualifying income over the relevant threshold, to notify them of the changes ahead. Further letters will be issued in February 2026, after the submission of the 24/25 tax return.

Can I opt out?

No, these changes are part of legislation and therefore mandatory unless an exemption applies. For a full list of exclusions, please see this link as outlined by HMRC – https://www.gov.uk/guidance/apply-for-an-exemption-from-making-tax-digital-for-income-tax . HMRC will also be introducing a new points-based penalty system. Penalty points will be accrued for each late submission and a financial penalty will be imposed once a points threshold has been met.

How can Alexander Sloan help?

We are here to support you and ensure you meet your submission obligations, whether you are an existing or prospective client. If you have any concerns or questions regarding Making Tax Digital for Income Tax, please reach out to your regular Tax advisor at Alexander Sloan or contact us and we would be happy to discuss.

March 27, 2025

The Government has reaffirmed its commitment to the economic course set out in the 2024 Autumn Budget, emphasising a drive for accelerated growth, strengthened security, welfare reforms, and enhanced efficiency measures. Central to this strategy is a renewed focus on tackling tax avoidance and evasion, alongside the introduction of stricter penalties for late payments.

Ahead of the Spring Statement, there was widespread speculation that the Chancellor might announce further tax changes. However, no such measures were introduced. Instead, the focus remained on economic growth and stability, reaffirming the Government’s long-term goals.

While no additional tax increases were announced, businesses still face significant financial pressures. From April 2025, businesses will contend with a 1.2% rise in employers’ National Insurance (NI) contributions, a lower threshold for NI payments, and an increase in the National Living Wage (NLW). These changes will inevitably add to operational costs and financial planning considerations for many organisations.

Meanwhile, changes to Inheritance Tax, announced in the Autumn Budget, will affect a greater number of individuals. However, taxpayers have been granted a one-year grace period to make any necessary adjustments, providing a crucial window for financial planning.

The Government’s strategy remains clear: fostering a stable and growth-focused economic environment while reinforcing compliance and efficiency measures. As businesses and individuals navigate these evolving fiscal policies, careful planning and strategic financial management will be essential to mitigating the impact of these forthcoming changes.
While the Spring Statement did not introduce any major new measures impacting businesses—unlike the Autumn Budget—several key developments warrant attention.

Building on measures announced in the Autumn Budget to raise £6.5 billion through stricter enforcement on tax avoidance and evasion, the Chancellor has committed to further increasing this amount by an additional £1 billion. This reinforces the critical importance of maintaining accurate and up-to-date tax records to ensure compliance.

The continued rollout of Making Tax Digital for Income Tax MTD for IT) will be expanded to include sole traders and landlords with annual incomes exceeding £20,000 from April 2028. Additionally, from April 2026, all end-of-year tax returns must be submitted via MTD-compliant software, replacing the use of HMRC’s online filing service.

Furthermore, the Government will introduce stricter late payment penalties for VAT and income tax Self Assessment taxpayers as they transition to MTD, effective from April 2025. The revised penalties will be structured as follows:

-A 3% charge on tax outstanding for more than 15 days.
-An additional 3% charge if tax remains unpaid after 30 days.
-An annualised 10% charge on amounts overdue beyond 31 days.

These measures reflect the Government’s ongoing commitment to strengthening tax compliance while encouraging businesses and individuals to adopt digital tax reporting systems. As such, taxpayers should take proactive steps to ensure they are prepared for these upcoming changes.

If you would like to discuss any of the announcements from the Spring Statement, please contact us.

October 29, 2021

The forecast for the UK economy is one of strong growth that takes the country back to pre-covid levels by 2022 but that inflation is set to rise to 4% next year.  Below is a summary of the key points from the Statement:

Public Finance and State of the Economy 

• According to Office for Budget Responsibility (OBR), Inflation is due to rise to an average of 4% next year 
• UK economy forecast to return to pre-Covid levels by 2022 
• Annual growth set to rebound by 6.5% this year, followed by 6% in 2022 

• Unemployment expected to peak at 5.2% next year, lower than 11.9% previously predicted 
• Wages have grown in real terms by 3.4% since February 2020 
• Borrowing as a percentage of GDP is forecast to fall from 7.9% this year to 3.3% next year 
• Borrowing as a percentage of GDP will then fall in the following four years to 1.5% 

• UK Government projects Foreign aid spending to return to 0.7% of GDP by 2024-25 

Government Spending 

• Funding will rise by an average of £4.6bn for Scottish Government, £2.5bn for Welsh Government, and £1.6bn for Northern Ireland Executive 
• Levelling Up Fund will mean £1.7bn invested in local areas across the UK 
• Government backing projects in Aberdeen, Bury, Burnley, Lewes, Clwyd South, Stoke-on-Trent, Ashton under Lyne, Doncaster, South Leicester, Sunderland and West Leeds 

• Extra £2.2bn for courts, prisons and probation services, including funding to clear the courts backlog 
• Tax relief for museums and galleries will be extended for two years, to March 2024 which means tax credits doubling for the Creative Industry 
• Core science funding to rise to £5.9bn a year by 2024-25 
• £6bn of funding to help tackle NHS backlogs 

Taxation and Wages 

• Universal Credit taper rate will be cut by 8% no later than 1 December, bringing it down from 63% to 55% – allowing claimants to keep more of the payment 
• Confirmation business rates to be retained and reformed 
• A 50% business rates discount for the retail, hospitality, and leisure sectors in England in 2022-23, up to a maximum of £110,000 
• Planned rise in fuel duty to be cancelled amid the highest pump prices in eight years 
• Consultation on an online sales tax 

• National Living Wage to increase next year by 6.6%, to £9.50 an hour 

Children and Education 

• Schools to get an extra £4.7bn by 2024-25 
• There will be nearly £2bn of new funding to help schools and colleges to recover from the pandemic 
• Schools funding to return to 2010 levels in real terms – an equivalent per pupil cash increase of more than £1,500 

• £300m will be spent on a “Start for Life” parenting programmes, with an additional £170m by 2024-25 promised for childcare 
• A UK-wide numeracy programme will be set-up to help improve basic maths skills among adults 

  Air Travel 

• Flights between airports in the UK nations will be subject to a new lower rate of Air Passenger Duty from April 2023 
• Financial support for English airports to be extended for a further six months 
• From April 2023, new ultra long haul band in Air Passenger Duty for flights of over 5,500 miles introduced 

Alcohol 

• Planned rise in the duty on spirits, wine, cider and beer cancelled 
• Simplification of alcohol duties will see the number of rates drop from 15 to six 
• Stronger red wines, fortified wines, and high-strength ciders will see a small increase in their rates 
• Rates on many lower alcohol drinks including rose wine, fruit ciders, liqueurs, lower strength beers and wines to fall 
• All sparkling wines to pay same duty as still wines of equivalent strength 

• Lower duty on draught beer and cider from containers over 40 litres will cut the rate by 5% 

Housing 

• £24bn earmarked for housing: £11.5bn for up to 180,000 affordable homes, with brownfield sites targeted for development 
• 4% levy will be placed on property developers with profits over £25m rate to help create a £5bn fund to remove unsafe cladding 
• £640m a year to address rough sleeping and homelessness 

If you would like to discuss any of the points above, please contact us. 

March 22, 2021

Making Tax Digital – What happens next? 

For many years HMRC have had high ambitions of becoming the world’s ‘most digitally advanced tax administration’ and in doing so they are shaking up the way in which individuals and businesses record their tax affairs. By implementing the Making Tax Digital (MTD) scheme, HMRC plan on initially mandating digital record keeping to reduce the UK tax gap, which lies at c.£31 billion of which £9 billion is attributable to ‘errors and failure to take reasonable care’. So where are we now and what happens next? 

Well, since April 2019 most UK VAT Registered businesses with taxable turnover above the VAT threshold of £85,000 were mandated to maintain digital VAT records. This also meant they were required to submit their VAT returns using Making Tax Digital (MTD) compatible software. For businesses to ensure they could apply these new processes, HMRC implemented a one-year soft landing period, which was later extended a further year, due to the COVID-19 pandemic. 

However, from 1 April 2021, UK VAT registered businesses will face further MTD obligations which were initially meant to be implemented from April 2020 but also delayed due to the COVID-19 pandemic. These new obligations centre around the requirement for a ‘digital link’. According to HMRC this essentially means there is a need ‘to use a compatible software package or other software that connect to HMRC systems’. 

Regardless of your current situation, from 1 April 2022 all UK VAT registered businesses must sign up to be MTD registered, regardless of whether they have exceeded the VAT threshold. So, are you prepared? If not, why not make the move to using MTD compliant software in advance of the new changes? 

How will this affect my business? 

If you have not already done so, you will be required to keep your VAT records in digital form. We recommend using cloud accounting software that is MTD compliant, such as Xero. In doing so you will be adhering to HMRC’s policies by utilising a ‘digital link’. 

What is a digital link? 

For example, if you use multiple software packages to keep records or submit VAT returns you will need to essentially link them, without any manual input. The most common example for businesses is the use of spreadsheets where figures are then copied and pasted into another system for the VAT return to be submitted – this is will no longer be allowed. 

HMRC confirmed ways in which you could link software:  

• using formulae to link cells in spreadsheet’s 
• emailing records 
• putting records on a portable device to give to your agent 
• importing and exporting XML and CSV files 
• downloading and uploading files 

There are however some exceptions to the above obligations. HMRC has granted exemptions for manual calculations for VAT schemes such as partial exemption, flat rate or the capital goods scheme. The digital links between the software packages used, need to be in place before the business’s first VAT period after the 1st of April 2021. 

What if I can’t implement the ‘digital link’ in time for April 2021? 

HMRC has offered an option for businesses to apply for an extension to the 1 April 2021 deadline if it can be proven that there is no reasonable fix to their legacy systems. The extension would involve notifying HMRC as soon as possible and providing a comprehensive plan to resolve the issues. We would advise you contact HMRC as soon as possible if you require extension. 

How can we help 

We have been assisting clients for some time now to ensure they are using MTD compliant software. As well as adhering to HMRC MTD rules, businesses have benefitted from the additional benefits of using Cloud Accounting software such as Xero. MTD for VAT was the first of many areas which HMRC will target, there are already plans for digitising Income Tax in 2023 and Corporation Tax in 2026.  

So, are you confident you are using the right software? You may not be VAT registered, but knowing HMRC’s plan for the years ahead, we would encourage you to review your financial systems at this stage and plan ahead. Why not get in touch and let us help ensure you are ready for the changes ahead. We have a range of Cloud Consultancy services which can help ensure your business in not only MTD ready but ensure accessibility robust real time financial data. 

Please contact us to learn more.