Making Tax Digital mothballed for millions of self-employed

HMRC postpones Making Tax Digital income tax reporting for millions of small businesses, raising threshold to £30,000 income from April 2026

Millions of self-employed are now off the hook when it comes to filing quarterly Making Tax Digital income tax returns – for now.

HMRC has postponed rolling out its Making Tax Digital system for millions of freelancers.

Previously any self-employed person earning more than £10,000 was going to have to start filing quarterly digital tax returns from April 2024.

>See also: Self-employed Making Tax Digital faces delay until 2026

This has now been pushed back to April 2026 – but only for the self-employed generating over £30,000 in income.

Which means millions of freelancers will not have rent expensive software to stay compliant for the time being.

For any freelancer earning between £30,000 and £50,000, the new system will be postponed until April 2027.

>See also: Making Tax Digital for VAT post April – what now?

Any freelancer earning more than £50,000 being given a two-year extension until April 2026.

Right now, only businesses registered for VAT – i.e., those earning more than £85,000 a year – have to go through Making Tax Digital.

Small business owners have dug their heels in about having to rent expensive accounting software from third vendors in order to file their online tax returns.

Making Tax Digital for self-employed – what’s changed

HMRC has decided to suspend the rollout of Making Tax Digital for income tax due to problems with its own internal IT system plus concerns over little awareness of the reforms from microbusinesses.

According to recent research by accounting software provider FreeAgent, more than 50 per cent of small businesses thought the Government had not provided enough information about Making Tax Digital, while just one in ten small business owners were confident that they understood everything about the next stage of the legislation.

Roan Lavery, CEO and co-founder of FreeAgent, said: “Considering this general lack of awareness – and with time running out before the deadline for the next phase of the legislation [MTD for ITSA] was due to be implemented – it was always possible that the government would choose to postpone it. There’s just no way that everyone affected would have been ready to comply with the changes in such a short space of time.”

Jim Harra, chief executive of HMRC, said that the changes were being paused to “make sure we get this right and deliver it effectively”.

However, tax experts said the U-turn was a blow to the department’s credibility.

HMRC claimed that forcing people to declare earnings and pay their tax more regularly would have helped to vastly reduce the £32bn that it says is underpaid in tax each year, or 5.1 per cent of the UK’s annual tax bill.

HMRC had planned to pilot MTD for corporation tax in 2024 and was scheduled to roll it out in 2026, but Paul Falvey, tax partner at business advisory firm BDO, told the Financial Times this may now “prove too big a risk” as it would coincide with the launch of MTD for income tax and would be “a lot of work for HMRC’s IT team to handle in one year”.

Tim Stovold, head of tax at accounting firm Moore Kingston Smith, told the newspaper that MTD is becoming “the Crossrail of tax reform”.

Further reading

Making Tax Digital 101: a guide to MTD

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...