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Making Tax Digital (MTD) may sound like something dreamed up in an office miles from the nearest field but it is heading our way, and it will change how many farmers, landowners and rural businesses keep their records and report income to HM Revenue & Customs (HMRC).

The main goal of MTD is to create a more efficient and accurate way of calculating and paying tax. This is to be done by introducing a compulsory requirement for taxpayers to maintain and keep digital records and to submit quarterly updates to HMRC using MTD compatible software.

A long running project; the first phase of MTD saw the introduction of MTD for VAT back in April 2019. The second phase, MTD for Income Tax (MTD for IT), is due to go live in April 2026, with further rollouts in April 2027 and April 2028. This will be the biggest change to the way Income Tax returns are filed since the introduction of Self Assessment in 1996.

From April 2026, MTD for IT will affect:

• Sole traders with a business turnover above £50,000 (eg, farming, contracting or other rural businesses)
• Landlords with rental income above £50,000 (eg let cottages, farmhouses, land or other property)
• A sole trader who also receives rental income, the turnover from which, when added together, exceeds £50,000

In all of the above tests, it is the gross income that is considered, i.e. before the deduction of any expenses.

From April 2027, the rules will continue to expand to cover more taxpayers and lower income levels in the years that follow.

How will this affect you?

If you meet the above criteria you, or we as your Accountant, will need to:

• Use software that is compatible with MTD for IT
• Keep digital records of your business and/or rental income and expenses
• Send to HMRC quarterly updates of your business and/or rental income and expenses
• Submit an end of tax year annual submission

How will you know if you have to comply with MTD for Income Tax from April 2026?

It is your income for the 2024/25 tax year, i.e. 6 April 2024 to 5 April 2025, that will dictate whether or not you have to comply with MTD for IT from April 2026 onwards.

Whilst some people may already know if they have breached the £50,000 income threshold in the current 2024/25 tax year, and so will have to comply with MTD for IT from April 2026 onwards, others may not know until their 2024/25 accounts and tax return are prepared.

There will therefore be a benefit in your 2024/25 accounts and tax return being prepared as soon as possible after the tax year end so that, if you have to comply with MTD for IT, you have as much time as possible to get things in place before April 2026.

MTD for IT marks a significant change from the current system, where most farmers and landlords submit just one tax return each year.

If you are already signed up for MTD for VAT, the transition should be more straightforward, as you are likely already meeting the requirements for digital record keeping and compatible software.  You may also be familiar with using software to submit your VAT returns, and in many cases, the same platform can be used for MTD for IT.

However, it is important to note that MTD for IT introduces added complexity, particularly as it now covers income from land rents and other property.

At David Allen, we are already ahead of the curve, taking part in HMRC’s MTD for IT testing so we know exactly how it works before it goes live.

If your income is likely to exceed the relevant thresholds, please contact our specialist software team who know the software options available and can recommend the best software for your circumstances.  Whether you manage a single rental property or operate a working farm, we are here to guide you through these changes and ensure a smooth transition, call us today on 01228 711888.

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