Many self-employed workers and landlords have just until tomorrow, August 7, to meet a major new HMRC deadline under the Government's Making Tax Digital (MTD) for Income Tax programme.
The new reporting system is now a legal requirement for around 864,000 sole traders and landlords earning more than £50,000 a year from self-employment or property income.
Those affected must submit their first quarterly update to HMRC using compatible software by the deadline.
Although HMRC has confirmed it will not issue penalties for late quarterly updates during the first year, experts are warning taxpayers not to become complacent, as fines will start applying from the second year.
Who needs to act?
The first phase of Making Tax Digital applies to:
- Sole traders earning more than £50,000
- Landlords with qualifying property income above £50,000
The scheme will expand to people earning more than £30,000 from April 2027 and those earning more than £20,000 from April 2028.
Anyone in scope should make sure they have signed up to Making Tax Digital, are using HMRC-compatible software and submit their quarterly update before the deadline.
What happens if you miss it?
While there are no financial penalties during the first year, HMRC's points-based penalty system will come into force after that.
Taxpayers will receive one penalty point for every missed quarterly deadline.
Once four penalty points have been accumulated, HMRC will issue a £200 fixed penalty, with further penalties possible for continued non-compliance.
Expert warns deadline falls at the worst possible time
Elsa Littlewood, private client services tax partner at BDO, said: "Getting ready for MTD for Income Tax has been a bit of a headache for accounting firms – and taxpayers who are unrepresented may also find the process challenging at first. However, there are some good explanatory materials on the gov.uk website to help."
She added: "The first reporting deadline comes at a rather inconvenient time when many people will be trying to enjoy their summer holiday."
Littlewood said it remains to be seen how many taxpayers meet the deadline.
"It will be interesting to see what proportion of the 864,000 taxpayers in scope actually meet the deadline, particularly if no penalties will apply in the first year."
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Although the quarterly submissions do not require taxpayers to pay tax immediately, experts say that could change in the future.
Littlewood said: "It's important to remember that these are reporting deadlines for basic income and expenses only and they don't trigger tax payments."
However, she warned HMRC is considering wider reforms to Self Assessment that could bring tax payment dates forward from April 2029.
She said: "While the rules are not yet set in stone, we could conceivably see payment demands being brought forward to coincide with quarterly MTD reporting deadlines in the future – or even an entirely separate set of payment deadlines, adding yet more complexity."
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