As Making Tax Digital for Income Tax Self-assessment (MTD ITSA) gets underway, some important details are being clarified by HMRC.
Given the sheer volume of people that are set to be affected, not just now but in 2027 and 2028, there needs to be an understanding of how different life circumstances can impact your MTD ITSA obligations.
The rules around maternity leave and income decline have now been established, so it is worth understanding whether you will still need to register for MTD if you expect to generate less income this year.
Will a reduced income make me exempt from Making Tax Digital?
As the MTD ITSA rollout for 2026 centres on the qualifying income threshold of £50,000, you would be forgiven for thinking that the income you generate this year will affect your obligations.
The reality is that your MTD ITSA obligations are determined by your qualifying income during the 2024/2025 tax year.
This means that any sole trader, self-employed individual or landlord who earned above £50,000 in that time will be expected to adopt MTD this year, even if their income has diminished since then.
If you have gone above the threshold since then, you will need to adopt MTD ITSA as expected.
The backdated calculations are due to MTD ITSA obligations remaining in place unless your income falls below the threshold for three consecutive years.
That in itself is complicated by the fact that the MTD ITSA thresholds themselves are dropping over the next few years, first to £30,000, then to £20,000.
This means that you will need to have an income lower than each of the relevant thresholds across this time to fall out of scope for MTD ITSA.
If you cease generating a qualifying income entirely, you do not need to wait three years and can declare to HMRC that this is the case and that MTD ITSA should no longer apply to you.
How does maternity leave impact Making Tax Digital obligations?
Unlike those who are employed by others, maternity leave can manifest in different ways for those under the MTD ITSA obligations.
Sole traders and self-employed individuals might elect to reduce their hours rather than step away entirely, while a landlord is likely not to need to take maternity leave at all.
If you do temporarily cease to receive a qualifying income, it will still be necessary to follow MTD ITSA rules.
You will need to adopt digital record keeping and submit quarterly filings along with your annual submission, even if your income for any period is nil.
Tax obligations may seem relatively low down on your list of priorities if you are currently welcoming new life into the world, but HMRC will not accept baby photos in lieu of tax filings.
We can help you to keep compliant with your MTD ITSA obligations, no matter what life throws at you.
There is still a little bit of time to prepare before the first deadline rolls around, so now is the time to make sure you can stay compliant.
