Group of employees crowded around a laptop, one employee writing notes in notepad

Is Making Tax Digital for Income Tax mandatory?

October 4, 2022
Following on from Making Tax Digital for VAT (MTD VAT) broadening its scope to include all VAT-registered business owners, HM Revenue & Customs (HMRC) now turns its attention to the rollout of Making Tax Digital for Income Tax Self Assessment (MTD ITSA).

While not scheduled to roll out until 6th April 2024 at the earliest, sole traders and landlords currently have the option to voluntarily register for MTD ITSA beforehand.But is Making Tax Digital for Income Tax mandatory, and who does it apply to?

Is Making Tax Digital for Income Tax mandatory?

In short: Making Tax Digital for Income Tax is mandatory for all eligible taxpayers. This means that if you meet the eligibility criteria, you’ll need to store digital records and file quarterly returns online using MTD-compatible software.You must comply with Making Tax Digital for Income Tax if you:
    Are registered for Self AssessmentGet income from self-employment, property or bothHave a total qualifying income above £10,000
For more information on who Making Tax Digital for Income Tax applies to, head over to our guide ‘Who will be affected by MTD ITSA?’

However, while eligible small businesses and individuals will need to register for MTD ITSA eventually, the rollout for the scheme is set to happen in phases over a period of time. As a result, while two businesses may both be eligible, there’s a chance that the date MTD ITSA becomes compulsory to them differs.To clarify what this could mean for your business, we’ve outlined when exactly MTD ITSA becomes compulsory for sole traders, landlords and partnerships.
Pressed for time? You can find the full Making Tax Digital timeline here:

Making Tax Digital timeline from 2019 to 2026

Sole traders and landlords

If you’re a sole trader or landlord, you’ll need to register for MTD ITSA by 6th April 2024 if you:
If you became a sole trader or landlord after 6th April 2023, you won’t be required to meet the Making Tax Digital for Income Tax requirements until you’ve submitted your first Self Assessment tax return. You can, however, choose to register voluntarily before that point.

This is also the case for individuals who have two or more sources of income, whose gross income exceeds the qualifying income threshold. For example, if over your 12 month accounting period you generate £7,000 in business income and £6,000 from rental income, your qualifying income will be £13,000 — meaning you’ll need to register for MTD ITSA.

Partnerships

General partnerships, on the other hand, aren’t expected to comply with Making Tax Digital for Income Tax requirements until 6th April 2025.Right now, this is only the case for general partnership who:
    Receive more than £10,000 in qualifying incomeOnly have individuals as partners
HMRC will set the dates for when MTD ITSA becomes mandatory for other types of partnerships, including limited liability partnerships, at a later date — watch this space.

Can I apply to be exempt from MTD for ITSA?

MTD ITSA is not mandatory for everyone, however. If you’re eligible for digital exclusion, you can apply to be exempt from MTD ITSA.Under the digital exclusion principle, you won’t have to follow MTD ITSA rules if:
    It’s not “reasonably practicable” for you to use digital tools to store business records or file quarterly updates due to age, disability, remoteness of location or another valid reasonYour business is subject to an insolvency procedureYou’re a member of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records
The rules of MTD for ITSA also do not apply to the following:
    Non-resident companiesTrustees, executors and administratorsForeign businesses run by non-UK domiciled individuals
If the above applies to you, make sure you send an exemption application to HMRC — failure to do so could see you landing some hefty penalties. HMRC considers each exemption application on a case-by-case basis, and can take up to 28 days to either grant or deny the application.If you’re already qualified for an exemption from MTD for VAT, you’ll also be exempt from MTD ITSA.

Can I opt out of MTD for ITSA?

If you meet the criteria for Making Tax Digital for Income Tax, you won’t be able to opt out unless you meet the exemption criteria.

Join us in creating the new age of accounting.

Simple language, simple software, so that you can spend less time dealing with admin and more time focusing on what really matters.