Shortly before the festive period, government quietly confirmed that Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) – not to be confused with MTD for VAT, which is already in place for all VAT-registered businesses – will be delayed once again. But more important than the delay are changes to who the requirements will apply to, and when.

We can’t see the end of the road yet, but we do know that those with self-employed turnovers lower than £30,000 – which covers many of the smallest and newest freelance enterprises – are spared from the requirements for the foreseeable future. Plus, a government-led review of how MTD for ITSA could work for this cohort in future invites the hope that many, if not all, of the smallest businesses could be exempt altogether.

MTD for ITSA - what's changed?

MTD for ITSA was previously planned for introduction on 6th April 2024 for anyone with a self-employed business turnover above £10,000. However, on 19 December 2022, government announced that MTD for ITSA will be subject to a new, phased rollout:

• MTD for ITSA will be required for self-employed individuals and landlords with an income of more than £50,000 from April 2026.
• For those with an income between £30,000 and £50,000, MTD for ITSA will be required from April 2027.
• For those with an income lower than £30,000, there is no set date.

Will those earning less than £30,000 have to join MTD eventually?

Government has left the question of MTD for those on lower incomes wide open. Previously, anyone earning £10,000 or more had to prepare for MTD – but in announcing the new, phased timetable, government made no reference at all to the £10,000 threshold. Does this mean it’s no longer government policy?

Government has pledged to consult with industry to review how any future rollout of MTD could be shaped to meet the needs of the smallest businesses, particularly those earning less than £30,000. This leaves the door open for the low threshold of £10,000 (which IPSE has consistently called on government to raise) to return as part of an ‘MTD-lite’.

Supporting the smallest freelance businesses

But another option – one that IPSE will advocate for – is for the smallest freelance businesses to be exempt from mandatory participation in MTD for ITSA. In fact, there is a case to be made for all those earning less than £30,000 to be given the choice to opt-in.

New requirements to purchase prescribed software and to report and pay tax quarterly, rather than annually, will only make it more difficult for new freelancers to get their businesses off the ground. Much like the VAT threshold, it would create a filter that many will prefer to avoid, including those with a side-hustle or part-time self-employed business, that could delay or possibly end ambitions to grow.

Most importantly, at a time of deep concern over the cost-of-living, fears of recession and job losses, we should be enabling those on lower self-employed incomes to keep as much of their money and time as possible. We know from IPSE research published last summer that the rising cost of living is one of the dominant factors behind the adoption of side-hustles, with it being cited as a motivation by a third (35%) of current side-hustlers and more than half (55 per cent) of those considering it in future.

Anything we can do to reduce friction for people seeking an income from self-employment, whether that’s shielding them from the added costs of MTD, or even raising the trading allowance for the very smallest operators, should be considered. IPSE will be working hard to ensure that government recognises this as part of its consultation with industry and in our conversations with Ministers and Treasury officials.

For more information on the latest changes to MTD for ITSA, be sure to check our updated advice page.