.svg){kind=small}
%402x.svg){kind=small}
The world has changed immeasurably over the last two decades, and the rapid growth of information and communication technologies and rising public expectations of world-class customer service mean that the UK needs a fully digital tax system able to support taxpayers across the full range of their needs.
MTD will help reduce the tax gap by requiring businesses and individuals to, keep digital records, use software that works with Making Tax Digital and submit updates every quarter, bringing the tax system closer to real-time.
MTD ITSA will apply to landlords and self-employed individuals and has three main components – digital record keeping, quarterly updates and year-end reporting. Digital record keeping will require the amount, category and date of business income and expenditure to be recorded in software. These digital records will then form the basis for the quarterly updates – summary totals of income and expenses which have to be submitted to HMRC at the end of each quarter.
Exemptions
Automatic exemptions for MTD ITSA apply to:
- trustees, including a charitable trustee or a trustee of non-registered pension schemes
- a person that does not have a National Insurance number — this only applies for a tax year where you do not have a National Insurance number on 31 January before the start of that tax year
- personal representatives of someone who has died
- Lloyd’s members, in relation to their underwriting business
- non-resident companies
It will be possible to apply for an exemption from MTD for ITSA when the application process opens, under the following circumstances.
- it is not practical for taxpayers to use software to keep digital records or submit them — this may be due to their age, disability, location or another reason
- they are a practising member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records
Explanations will have to be provided for these exemptions apply.
HMRC will consider the information which is sent and then make a decision:
- where the taxpayer is exempt HMRC will advise what they need to do next
- where there is not an exemption, the taxpayer will be able to appeal
Uncertainties
There are many areas of MTD which have not been clarified by HMRC. Tax bodies, such as the Chartered Institute of Taxation (CIOT) and the Association of Taxation Technicians (ATT) have been meeting with HMRC over recent months. HMRC have provided updates on the beta testing phase and have outlined their success criteria for assessing the effectiveness of MTD ITSA during this testing phase.
HMRC will provide updates on the development and availability of free software and the development of a HMRC year end filing service, which can be used by taxpayers to complete the year end filing.
It is anticipated that more software suppliers will come online soon. HMRC and the Tax bodies are encouraging agents to start planning for MTD ITSA now, even if their preferred software provider has not yet delivered a solution.
MTD ITSA has been delayed several times in the past but following the Autumn Budget there is no suggestion from HMRC that further delays are on the cards.
The message to all agents with clients that will be impacted, is to start planning for April 2026 and start engaging with clients now to get them ready for the changes ahead.
Reference/ Citation
Tax advisor magazine
