Global Daily Tax News, UK To Expand Making Tax Digital Requirements, (Apr 1, 2025)

The UK Government has announced plans to further expand Making Tax Digital requirements for income tax purposes from April 2028.

First introduced from April 1, 2019, Making Tax Digital introduced new reporting obligations on value-added tax registered persons, requiring them to keep their records digitally (for VAT purposes only) and provide their VAT return information to HM Revenue and Customs (HMRC) through MTD-compatible software.

The regime is being phased in for income tax.

In December 2022, the Government decided to delay the introduction of new reporting requirements for self-employed individuals and landlords until April 2026, an extension from April 2024.

Under current plans, self-employed individuals and landlords with an income of more than GBP50,000 will be required to keep digital records and provide quarterly updates on their income and expenditure to HMRC through MTD-compatible software. Those with an income of between GBP30,000 and GBP50,000 will need to do this from April 2027.

The Government has now announced that the requirements will be extended to sole traders and landlords with income over GBP20,000 from April 2028.

Announcing the new implementation timeline, the Government said it would continue to explore the introduction of MTD for those with income below the GBP20,000 threshold.

The Government has also announced that HM Revenue and Customs will require taxpayers within the scope of MTD to file their returns using a MTD-compatible software product, rather than being allowed to use HMRC's online filing service to submit a final tax return.

The Government said: "The government believes this will provide a better customer journey than one that allows reporting to be split across commercial software and HMRC's online services. It means users will have a consistent format for the completion of their Self Assessment obligations, and it maximizes the productivity and wider benefits that innovative and tailored commercial software can provide for MTD users."

The Government has also announced a number of other changes to the regime, including:

• Changes to enable customers with an accounting date of March 31 to start their MTD obligations on April 1 in the first year of operating MTD. The Government considers this will avoid the need for burdensome manual adjustments at the end of the tax year;

• A power for HMRC to cancel or reset late submission penalty points and to cancel associated financial penalties. The Government said this will enable HMRC to cancel penalty points, for instance in periods prior to insolvency.

Legislation to implement these changes will be drafted prior to April 2026, the Government said.

The plans to require taxpayers to use commercial software were criticized by the Low Income Tax Reforms Group (LITRG), stating: "Today's announcement is yet another burden on low-income taxpayers that will make it harder for them to meet their tax obligations."

"Since Making Tax Digital was first announced, we have been clear that HMRC should provide free software, like they do for self assessment, rather than rely on third party companies to help people comply with the new record keeping and reporting rules."

"Many of the small businesses who will be in scope for Making Tax Digital from April 2026 make very modest profits, and there will be some that aren't even making enough money to pay tax or national insurance. This has the potential to be costly, confusing, and distracting from their day-to-day businesses, and even unfair when those who are not within MTD will be able to continue using HMRC's free online tax return service."

"We were already concerned that these businesses were going to struggle to get to grips with choosing and using the accounting software they will need to keep their records up to date."

"It also means HMRC are unlikely to be able to directly support taxpayers with their self assessment filing, pushing them towards third party software companies to get the help they need. This is unsatisfactory and does not align with HMRC's charter commitment to support people to meet their tax obligations."

"HMRC should consider granting more MTD exemptions and delaying the imposition of penalties for late filing or inaccurate tax returns until the system beds in to help those who struggle with the new requirements."