The journey to Making Tax Digital for Income Tax (MTD IT) is well underway, bringing significant changes to how income tax is reported and managed. To help accountants and bookkeepers navigate these changes effectively, we’ve compiled the most important updates and clarifications from recent discussions with HMRC. Whether you’re preparing for mandated clients or looking ahead to upcoming deadlines, this guide has you covered.
Key Updates and Clarifications
1. Mandated Customers Must Sign Up
Mandated customers are required to actively sign up for MTD IT. This is a crucial step that agents must take for each mandated client—HMRC will not sign them up automatically. Registration for April 2026 mandation begins in April 2025, allowing plenty of time to spread out the administrative workload.
2. Four Quarterly Updates and One Digital Tax Return
The term “5 Tax Returns” can be misleading. Mandated clients will need to submit four quarterly updates on income and expenses, followed by a digital tax return. The digital tax return will be more streamlined, with many fields pre-populated using information HMRC already holds, such as PAYE data.
3. Assessment Years and Income Thresholds
MTD IT assessment operates on a two-year lag to provide stability. For example, the income for the 2026/27 tax year will be assessed based on the 2024/25 tax return. Each April, HMRC looks back to the return due on 31 January of that year to determine the threshold status for mandation.
4. Minimum Mandation Period
Once a client is mandated, they remain within the MTD IT framework for a minimum of three years. If their income falls below the threshold for three consecutive years, they can opt out, as specified in Regulation 21 of the Income Tax (Digital Requirements) Regulations 2021.
5. Partnership Income and Mandation
It’s important to note that partnership income is reported annually and is not counted toward the mandation threshold for MTD IT.
6. Joint Property Ownership
For clients with joint property ownership, specific easements are being clarified. More detailed guidance will be released soon to address this scenario.
7. Communications to Clients
HMRC’s communication campaign about MTD IT is kicking off, ensuring clients and agents are aware of the upcoming changes and requirements. Be proactive in guiding your clients through the transition.
What’s Next for MTD IT?
Interactive Tools and Resources
To simplify the process, HMRC has introduced a range of tools and resources:
- Agent Toolkit: Practical advice to help agents prepare for MTD IT. The current version is available here, with an updated version expected in March.
- Interactive Assessment Tool: Helps agents determine which clients are mandated for MTD IT. Access the tool here.
Guidance and Training Videos
HMRC has also released useful video guides:
Overview of MTD IT for Agents
Tips for Agents from HMRC
Legislative Framework
For those looking for in-depth details, refer to:
- Income Tax (Digital Requirements) Regulations 2021: View Regulation 21.
- Digital Record-Keeping Notice: Read the Guidance.
Guidance for Agents
HMRC’s step-by-step guide for agents is a valuable resource for understanding how to support clients in this transition. Access the guide here.
How to Prepare Your Practice
- Educate Your Team and Clients: Ensure your team is familiar with the latest updates and communicate the changes to clients proactively.
- Leverage Available Tools: Use HMRC’s interactive tools, training videos, and guidance to streamline the process.
- Stay Updated: Subscribe to HMRC’s monthly agent updates for the latest news and calls to action.
- Plan Ahead: Encourage clients to register for MTD IT early (starting April 2025 for April 2026 mandation) to spread the administrative burden.
- Ensure Compliance: Familiarise yourself with the legislative requirements, including digital record-keeping and reporting obligations.
Making Tax Digital for Income Tax represents a significant shift in tax reporting, but with the right preparation, tools, and guidance, accountants and bookkeepers can navigate this transition smoothly. By staying informed and proactive, you can position your practice as a trusted advisor, helping clients not only comply but also benefit from the efficiencies that digital processes bring.
For more information, explore HMRC’s official resources, and don’t hesitate to reach out if you have questions or need additional support. Together, let’s make MTD IT a success!
