By Sam Bacall, Partner

There’s been a lot going on with Making Tax Digital (MTD) lately, with recent news about penalties, Corporation Tax (CT), and Income Tax (IT) becoming the focus of many conversations in accounting.

I know our clients have expressed some confusion about what’s actually happening with MTD.

It’s a frustration we share as business accountants. We want to be able to offer clarity to our clients, but constant delays and changes to MTD from HM Revenue & Customs (HMRC) make this more challenging.

However, we have cut through the fluff and boiled down to what’s really going on with MTD, so that you can have a better understanding of what’s ahead for your business and its tax obligations.

MTD for Corporation Tax is a no-go

One of the main points from HMRC’s Transformation Roadmap is the reveal that MTD will not be introduced for Corporation Tax (CT).

This will be a big relief for many businesses worried about the extra compliance burdens and costs of MTD.

However, HMRC still intends to modernise the CT system, so it is important to stay alert for future changes.

MTD for Income Tax is finally happening…for sole traders and landlords earning £50,000

After several delays, MTD for Income Tax (IT) is indeed finally happening.

Following on from MTD for Value Added Tax (VAT), MTD for IT is the next phase of the Government’s MTD transformation.

From April 2026, it will be mandatory for sole traders and landlords with a gross income of at least £50,000 to comply with MTD for IT.

This means keeping digital records of all income and expenses, submitting quarterly tax returns using MTD-approved software, and completing an end-of-period statement (EOPS) and submitting a final declaration annually.

This threshold will drop to £30,000 from April 2027, and again to £20,000 in April 2028.

There are currently no plans to reduce the threshold further.

Late payment penalties increasing further

The Spring Statement unveiled plans to increase penalties for late tax payments under MTD.

According to the Transformation Roadmap, HMRC is consulting on proposals to further increase these penalties, as a means to encourage individuals and businesses to pay on time.

The Roadmap also highlights HMRC’s plan to deliver a Digital Disclosure Service by 2028, which will allow customers and intermediaries to correct tax returns and pay penalties themselves.

The path ahead for MTD

Last month, I shared my thoughts on HMRC’s handling of MTD so far and highlighted the practical improvements we believe are necessary to make the UK’s tax service work for small businesses.

However, change takes time, and the tax system remains a complex web of mystery for many business owners.

That’s why we encourage all businesses and sole traders affected by MTD to seek specialist advice from an accountant.

We’ve spent years getting to know the ins and outs of the UK tax system, so we know what we’re dealing with.

If you’re struggling to understand what’s actually going on with MTD, we’re here to take care of that problem for you. We’ve figured out what’s going on, and we can help you make sure you’re compliant.

Need help transitioning to MTD? Contact our experienced tax team today.