White logo - Duncan & Toplis

The introduction of Making Tax Digital for landlords and sole traders

| Graeme Hills | 26 March 2024

Since Making Tax Digital for Income Tax Self Assessment - MTD for ITSA for short - was announced back in 2015, HM Revenue and Customs (HMRC) has been rolling out the policy in stages.

Now, the latest proposals have given an indication of when MTD for ITSA will begin to apply to landlords and sole traders, with April 2026 being the start date.

The new proposals will affect landlords and sole traders with business or property income over £30,000 and will require them to maintain digital records and update HMRC each quarter.

Planning ahead

The policy will only apply to individual landlords and sole traders to begin with - the government has stated that it remains committed to the future introduction for partnerships, but it has not been confirmed when this will be.

And for those with an income below £30,000, it will not be mandatory to join MTD for ITSA, but people in this category can still sign up voluntarily.

The measure will come into place in two phases; from April 2026 for those with qualifying income over £50,000 and from April 2027 for those with qualifying income over £30,000.

It is expected that around 780,000 people will join the service from April 2026, with a further 970,000 people joining in April 2027.

Why is it being introduced?

The intention of introducing MTD for landlords and sole traders is to make it easier for everyone to get tax right. HMRC has stated that MTD for ITSA is part of its “commitment to modernising the way small businesses handle their tax and reduce tax lost to error.”

The UK is following in the footsteps of many other countries that have already implemented it, in an attempt to reduce the tax gap.

The tax gap - the amount of tax that is due but goes unpaid - is around 18.5% for Self Assessment businesses, which is equivalent to £5 billion. By introducing digital measures, it is hoped that it will reduce the potential for error and time spent making corrections, resulting in better business productivity.

What will it involve?

The latest proposals require individual landlords and sole traders to keep their tax records electronically and submit tax reports to HMRC through approved software.

For each tax year, a report of the business’ trading or property income, allowable expenditure and claims for allowances or reliefs against such income must be submitted. Additionally, interim reports will need to be submitted quarterly - the dates for these are fixed and will be set out in the official regulations.

A draft of the regulations has already been published for technical consultation.

Will it cost money to transition?

HMRC has estimated that each business within scope will incur an estimated average transitional cost of £320 and an average annual additional cost of £110.

Transitional costs could include things such as:

  • Time spent familiarising with MTD and in-house training
  • The purchase of hardware
  • Accountancy or agency costs

Continuing costs could include things such as:

  • The cost of software subscriptions to move away from spreadsheets
  • The cost of bridging software for MTD compatibility for those who continue to use spreadsheets
  • Time-making quarterly updates

It’s expected that these costs will vary from business to business, being affected by factors such as the size and complexity of the business, the degree of digital capability and the cost of the software solution employed.

If you’re a landlord or sole trader and would like professional advice about MTD for ITSA, or would like to speak to our dedicated team of tax professionals, please get in touch.


Share on LinkedIn Share on Facebook Share on X Share via Email