Making Tax Digital for Income Tax is coming – does it apply to you?

Are You Ready for HMRC’s 2026 Digital Tax Revolution?

Here at TAG Accountants Group, we are committed to keeping our clients well-informed and ahead of the curve when it comes to changes that may impact them.

To ensure you are fully prepared, we have put together some essential information regarding the forthcoming implementation of Making Tax Digital for Income Tax, along with important reminders on key areas such as Amazon and eBay trading and the Annual Tax on Enveloped Dwellings.

Staying up to date with these developments is crucial, and we are here to help you navigate any potential challenges with confidence.

MTD for IT – timing and who it will affect

With just over a year remaining until the implementation of Making Tax Digital for Income Tax (MTD for IT), now is the ideal time to assess whether your business will be required to comply with the new regulations from 6 April 2026. Planning well in advance will ensure a smooth transition and help you stay fully prepared for the changes ahead.

If you are a sole trader or run an unincorporated property business, and your ‘qualifying income’ (effectively your turnover from a sole trade or property business) is £50,000 or more for the 2024-5 tax year, you will be mandated into MTD for IT by HMRC from 6 April 2026. It may be too early to know what your 2024-5 income will be at this stage, but reviewing your 2023-4 accounts and tax return should at least give you some indication of whether this is likely to apply to you.

HMRC has stated that it will review 2023-24 tax returns to identify taxpayers who are likely to be required to comply from 6 April 2026. In the coming months, those identified will receive a letter informing them of their expected obligation under the new regulations.

If you receive one of these letters, or if you would like further explanation about preparing for MTD for IT, then please contact the team at TAG Accountants. MTD for IT will involve keeping your detailed accounting records in software compatible with the MTD system and involves submitting quarterly digital reports to HMRC about your income and profit levels.

For many individuals, this could cause significant upheaval and investment in new systems. We can help you choose the most suitable software, implement the required processes, and also demonstrate how this can assist you in running your business better.

Are you in danger of becoming a trader?

In 2024, digital platforms such as Amazon and eBay were, for the first time, required to report information about vendors operating on their platforms to HMRC. These reporting obligations applied unless a vendor had made fewer than thirty sales within the year and earned less than €2,000 (approximately £1,700) from those transactions.

This strengthens HMRC’s data collection powers and could lead to the discovery of online traders who have not been declaring their income to HMRC and paying the requisite amount of tax.

Due to significant levels of misinformation in mainstream and social media, many people have incorrectly concluded that they will have to pay tax on their sales from, for instance, having a garage or loft clear-out and disposing of unwanted items. As a result, HMRC has sought to set out the circumstances in which tax would arise in these circumstances – generally, to be a trader you would need to be undertaking an activity with a view to making a profit, so occasional sales of unwanted items are unlikely to result in a tax bill.

It is worth reiterating the existence of the £1,000 trading allowance, which means that if a person’s sales income from trading is £1,000 or less in a tax year, that trading income does not need to be declared to HMRC. However, if this figure is exceeded, then that trade needs to be declared to HMRC on a self-assessment tax return.

ATED – does your property company need to make a return?

Annual Tax on Enveloped Dwellings (ATED) is payable by ‘non-natural persons,’ i.e., primarily companies that hold an interest in UK residential property with a value of over £500,000. There is an annual ATED return to be made to HMRC as well as a potential charge to pay, based on the value of the property, unless the entity qualifies for available relief.

Available relief includes dwellings that are let to a third party on a commercial basis and are not, at any time, occupied, or available for occupation by anyone connected with the owner. If this relief applies, an ATED return still needs to be submitted but relief should be claimed on the ATED return.

ATED is payable for a chargeable period ending on 31 March each year. ATED returns must be filed within 30 days of the period commencing, not ending! So, returns for the period 1 April 2025 to 31 March 2026 must be filed no later than 30 April 2025 or there will be late filing penalties imposed.

HMRC is increasingly tightening its focus on this area and will be issuing letters to companies that own one or more dwellings valued at over £500,000, where no profits were declared in their Corporation Tax returns between 2017 and 2020 and either no ATED returns were filed, or relief was claimed.

These letters will question whether the claimed relief is genuinely applicable and, if the property is not being operated on a commercial basis with a view to generating profit, whether ATED returns should have been submitted and the appropriate charges paid. A response will be required within 40 days, either providing further information, making a disclosure or filing any outstanding returns. Failure to respond in this time frame could result in a discovery assessment and penalties.

If you are unsure whether ATED applies to your property company or have received a letter from HMRC, our expert Tax Team at TAG Accountants is here to help.

The importance of great advice

The areas highlighted above have the potential to catch out those who may be unaware or unprepared. Given the complexities involved, it is always advisable to seek expert guidance to fully understand the potential tax implications and explore the most effective ways to mitigate them. Professional advice can make all the difference in navigating these intricate matters with confidence and ease.With that in mind, we invite you to see what our clients have to say about the outstanding service we provide by visiting our testimonials page.

If you would like to arrange a meeting with one of our experienced experts, please do not hesitate to contact our friendly team at TAG Accountants Group. You can reach us by calling 01902 783172 or click here to get in touch via our website.

We greatly look forward to speaking with you.