By Craig Reid, Partner
Making Tax Digital (MTD) for Income Tax is now mandatory for sole traders, self-employed individuals and landlords with a qualifying income over £50,000.
However, if you are looking at your current financial situation and have realised that your income has fallen below that amount, you might be tempted to ignore MTD for the time being.
This can result in noncompliance if you incorrectly absolve yourself of MTD, so it is worth understanding how and when MTD obligations can be removed.
When is someone no longer impacted by MTD?
It might be tempting to think that if your income drops or is frozen entirely for a period of time, MTD no longer applies to you.
However, the obligations for MTD date back as far as the 2024/2025 tax year.
This means that if you had a qualifying income over £50,000 in that year, you will need to carry on following MTD rules from 2026/27, even if that income is now below the threshold.
Maternity leave is cited as the most common reason why a person may be in a position of heavily reduced income but have the expectation of restoring it in the near future.
To be fully MTD exempt, you need to demonstrate to HMRC that you will not be receiving a qualifying income going forward.
For landlords, this will likely be when property is sold, while sole traders and self-employed individuals will need to show that they no longer do the work they once did.
If you are in scope for MTD but are suffering a temporary setback in your income generation, you will need to stay compliant for three years.
Only if your income falls below the threshold for three consecutive years will you be able to stop following MTD rules.
This is further complicated by the fact that the thresholds themselves are falling, first to £30,000 for the 2025/26 tax year, which would start MTD in April 2027 and then to £20,000 for the 2026/27 tax year, which would start MTD in April 2028.
How do I stay MTD compliant?
If you are not able to make yourself exempt from MTD, then the new obligations will continue to apply to you.
This means adopting digital record keeping, submitting quarterly filings and submitting an annual return.
It may be frustrating that these rules continue to apply even if your income is nil.
However, the main aim of MTD is to streamline the tax process and allow for more consistent monitoring of your financial position throughout the year.
Our team can help you manage your MTD obligations, regardless of what is going on in your life.
If you are on maternity leave or your business is struggling, we can help support your engagement with MTD so that you do not find yourself drawing the ire of HMRC.
Get in touch to ensure that you are fully MTD compliant, no matter your personal circumstances.