Landlords, sole traders and self-employed individuals set to receive Making Tax Digital letters
Posted on 6th May 2025
HMRC is preparing to send letters to taxpayers who will be affected by the upcoming Making Tax Digital (MTD) requirements for income tax. This new initiative will require landlords, sole traders and self-employed individuals earning over £50,000 annually to report their income on a quarterly basis. The letters will start arriving in April 2025, marking the first official communication from HMRC about the changes.
What is Making Tax Digital for Income Tax?
From April 2026, the MTD rules will require individuals with income over £50,000 to report their earnings to HMRC every quarter, rather than annually as is the current practice. This change applies to self-employed individuals, sole traders, and landlords who meet the income threshold for the 2024-25 tax year.
HMRC has confirmed that letters will be sent starting in April 2025 to individuals whose self-assessment tax return for 2023-24 shows an income near or over £50,000. The letter will inform them of their obligation to comply with MTD for Income Tax.
What do accountants and their clients need to know?
Accountants have been advised to start informing clients about the forthcoming changes. HMRC has outlined the following options for clients to enrol in MTD:
1. Option 1: Sign up for the 2025-26 tax year to help accountancy firms and clients prepare for the transition. Early adopters will have access to a dedicated HMRC customer support team to assist with any issues that arise during the testing phase.
2. Option 2: Sign up for the 2026-27 tax year, when the mandatory rules will fully come into effect.
Accountants will need to work with their clients to determine which option is best for them. However, it is important to note that clients who sign up during the testing period will not be able to carry back losses or change their accounting methods. Additionally, certain types of clients are excluded from the trial period, including those on HMRC payment plans or those earning income from a trust or furnished holiday lets.
Exemptions for MTD for Income Tax
Once MTD for Income Tax becomes mandatory in 2026, there will be limited exemptions for some taxpayers. These include those who are unable to use digital tools due to age, disability or location. Members of specific religious communities that prohibit the use of electronic communications may also qualify for an exemption.
Individuals already exempt from MTD for VAT due to similar reasons will not need to reapply for an exemption under MTD for Income Tax.
How will these changes impact taxpayers?
As the first phase of MTD for Income Tax rolls out, it is essential for accountants and tax advisors to stay up to date with the changes and understand how they will affect their clients. The transition to quarterly reporting will require preparation, and it is vital that all affected individuals are aware of their responsibilities well in advance.
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