- Sole proprietors and traders with incomes over £30,000 will be affected by the changes
- It means maintaining digital records and submitting quarterly statements.
- HMRC says it will ‘make it easier for everyone to get taxes right’
HMRC is expanding its Making Tax Digital program to sole proprietors and traders with income over £30,000 from 2027.
The tax office announced plans for Making Tax Digital (MTD) in 2016, but has faced numerous delays over the years.
The initiative, which among other things aims to encourage companies and accountants to use online chatbots, has been the subject of widespread criticism.
New delays: changes to self-assessments could cause chaos, expert warns
There are now concerns that extending the MTD for the self-employed will only exacerbate delays.
Since 2019, the MTD for VAT has been mandatory for all VAT registered businesses, above the £85,000 threshold and those that have registered voluntarily.
These businesses must maintain digital records of all business transactions and submit statements quarterly using approved software.
HMRC is also in the process of putting all self-assessment statements online. MTD for Income Tax Self-Assessment (Itsa) will replace the current system, so owners and self-employed workers will also have to file quarterly returns.
They must also submit a final declaration at the end of the year, which replaces the current January self-assessment.
Today, HMRC confirmed that all businesses and landlords earning more than £50,000 will have to join MTD for Itsa from April 2026. This threshold will fall to £30,000 the following April.
He says it will “make it easier for everyone to get taxes right… Mistakes in the handling of tax affairs contribute to the tax gap – the amount of taxes that are owed but not paid.” The tax gap for self-assessment companies is around 18.5 per cent, or £5 billion.’
HMRC expects around 780,000 people with business or property income over £50,000 to join MTD for Itsa from April 2026, with a further 970,000 to join from April 2027.
Businesses earning between £30,000 and £50,000 are expected to cost approximately £350 and an average annual additional cost of £110.
For those earning more than £50,000, the transition cost is expected to be an average of £285 with an additional average annual cost of £115.
“Costs will invariably differ from business to business and are influenced by factors including the size and complexity of the business, the degree of digital capability, and the cost and functionality of the software solution employed.”
The MTD initiative has drawn criticism from accountants and business owners who have struggled with the transition.
Last summer, the tax office announced it would close its self-assessment helpline for three months to try to direct queries from the helpline to the department’s digital services.
He said he was testing a “seasonal model” because the helpline receives fewer calls during the summer, but he gave taxpayers only two days’ notice.
In December, the tax office closed its phones again ahead of the January 31 self-assessment deadline.
This Is Money has written extensively about HMRC delays and the impact of the closure of the VAT registration and self-assessment helpline.
There are now concerns that the introduction of quarterly returns will only make these problems worse.
Lee Murphy, CEO of the Accountancy Partnership, said: “The revamp of Making Tax Digital for self-assessment filings means that instead of providing tax information once a year, self-employed people will need to use compatible software and report their financial activity. four times a year”. times a year, replacing the annual tax return with a Final Return.
‘HMRC hopes the move to digital will be more efficient for them and the self-employed and close the tax gap, but with almost a million people being required to self-assess in a new way, there are bound to be problems.
‘It is likely that only calls that HMRC determine are a priority will be answered and this will cause problems for those who may struggle with the new reporting method each quarter.
“It is up to HMRC to ensure the MTD service is comprehensive and easy to use, if there is now a human being just a call away to resolve any issues with the technology.”