12th May 2025
Renowned tax lecturer and Making Tax Digital (MTD) expert, Rebecca Benneyworth, updates 1000+ accountants from the Leonard Curtis Lifecycle network on key things to think about as 12-month countdown to MTD begins.
The mandation of MTD for income tax begins in April 2026 and this will be the biggest change to affect firms dealing with personal tax since self-assessment was introduced in the late 1990s. Firms will need to plan the workload carefully and make strategic decisions about what support they will offer to clients affected by the changes.
No big bang theory
The original regulations envisaged a Big Bang start to MTD with exemption for those with gross income below £10,000. So, the first thing to note is we now have a phased introduction for MTD. By April 2026 it will affect all those with a gross income of £50,000, by April 2027, £30,000 and by April 2028, £20,000 will be the threshold, confirmed in this year’s Spring statement.
As we know, mandated income types – so those in self-employment (not partnerships) and landlords, with income from properties including foreign property – will then have to keep digital records, submit quarterly updates and file a tax return.
Be on the front foot with affected clients
For those affected clients, you will need to get in touch to warn them about the changes from April 2026 and plan to transition to digital records and quarterly reporting as soon as possible. The digital start date for a business is the date by which they must comply with the digital obligations which will give rise to penalties if not met. Every client will need to be signed up to MTD so you will need to identify those who will be mandated in 2026. As the 24/25 tax returns are completed this will become clear. It takes about five minutes per client, but you do need to allow time to do it so prepare a list and start now.
There is no doubt that HMRCis MTD ready IT wise – they are already starting to communicate with agents and taxpayers by letter or email. They will also be contacting those with income exceeding £45,000 to warn them. Whether support services around MTD will be up to scratch is harder to predict!
Devil in the digital detail
The new MTD legislation will require businesses and landlords to keep digital records, make quarterly submissions and have it finalised by 31st January each year. This must include information about each transaction, trading and property income.
Depending on the size of business and its digital readiness you will need to work with the client on what they can do and what they are prepared to pay an accountant to do. Ideally you should create the records as near to real time as possible. Digital records can be kept on more than one software solution, but this will require digital links before submission, as for VAT, and spreadsheets are perfectly acceptable. There will have to be separate accounting records for each trade where more than one trade is carried out within a business.
Quarterly updates are simply totals of the transactions for the quarter. Currently the due date for these is the 5th but will be moving to the 7th. So 7th July, October, January and April. They can be submitted before the end of the quarter if there are no more transactions and you will have one month and seven days to do so. Then the final step will be to file the tax return. Software companies are starting to offer an end-to-end solution here, rather than having to use separate accounting and tax systems. This will be a help in managing workload.
However which way you look at it there are going to be workload peaks and it will be important to smooth it along and spread it throughout the year. I have already recruited two new people, and I would advise firms to staff-up early. Also have a think about the design of your services and how much time is spent collecting data – this is work you need to eliminate or minimise. Manual records transcribed for clients simply won’t work with everyone on the same quarter cycle.
Moving reluctant clients onto digital records
Clients can either do this for themselves, and for many this will be straightforward having embraced digitalisation in other parts of their business. Or they can enlist support of bookkeepers or an accountancy firm. Professionals should be geared up to provide basic services like this. For clients that refuse to accept MTD you will need to work around them or, dare I say it, consider parting company. We don’t expect this to apply to many businesses already working with professional financial support services. They recognise the huge benefits to digitalisation.
But there is also a community of ‘digital refusers’ – who still have no email and online banking – these will be hard to convert. We also need to consider that 50% of affected businesses and landlords – such as those in the building trade, for example – don’t have an accountant. There will certainly be challenges ahead.
Reap the benefits of testing phase 2025
You can only really plan service delivery and pricing when you know exactly what is involved. That is what the Public Testing Phase 2025 is all about. HMRC recommends that you plan for 10% of your total MTD population to come into testing during 2025-26 and I would strongly recommend it. You can put clients in as early as this quarter.Test a few of them for eligibility, get permission, sign them up and go on the journey together.
It is hard to believe MTD was first announced in December 2015 and has been much delayed and indeed opposed by the profession for a while. That battle was lost a long time ago. It is about good preparation now.