Making Tax Digital
Making Tax Digital for Income Tax (MTD for IT) for small businesses
MAKING TAX DIGITAL
Making Tax Digital (MTD) for Income Tax for partnerships
If you’re in a business partnership, you might have heard about Making Tax Digital for Income Tax (MTD for IT) and how it’s impacting some sole traders and landlords. This is separate to MTD for VAT which applies to all VAT-registered businesses. As it currently stands, business partnerships aren’t required to sign up for MTD for IT, but the government has confirmed that this will change in the future.
While it’s not a pressing concern just now, we’ll explore the impact of MTD for IT, so you’re better prepared when it’s time to transition.
MTD for IT for partnerships: in summary
Making Tax Digital for Income Tax doesn’t currently apply to partnerships, but HMRC plans to unveil a timeline to introduce it.
Getting used to accounting software today means your partnership is less likely to be caught out when MTD for IT does apply to you.
Making Tax Digital for Income Tax is designed to make it simpler to manage your finances and give you more time to spend on your business.
Does Making Tax Digital for Income Tax affect partnerships?
For the self-employed and property owners who have qualifying income of over £50,000 in the tax year 2024 to 2025, the deadline to move over to Making Tax Digital for Income Tax is on April 6 2026.
Whether you’re part of a general partnership, a limited liability partnership (LLP), or a limited partnership (LP) , if you’re in a business partnership, you don’t need to follow MTD for IT rules. HMRC has stated that business partnerships will eventually follow MTD for IT rules in the future, and timelines will be announced.
The existing Self Assessment rules that all sole traders need to stick to still applies to business partners, but the new ways of working, including the creation of digital and HMRC-compliant records, don’t come into play yet.
Who do the new MTD rules apply to?
The new MTD for IT rules will be introduced from April 2026 and apply to sole traders and property owners who have over £50,000 of qualifying income in the tax year 2024 to 2025. This includes small business owners, tradespeople, and landlords, among others.
In April 2027 this threshold will lower to over £30,000 of qualifying income per tax year, followed by a further reduced threshold of over £20,000 from April 2028.
What partnerships can do to prepare for Making Tax Digital for Income Tax
While the decision to move partnerships to MTD for IT has been delayed, there are still things you can do to get in the best possible shape for when the time comes:
Switch to digital record keeping
If you can make digital record keeping a habit, not just for you, but for your teams too, then the transition to MTD for IT shouldn’t come as a shock. Digital record keeping also has its own advantages, from searchable information to increased shareability between teams. Partnerships who are VAT registered will already be doing this for MTD for VAT.
Start preparing your books for Income Tax on a quarterly basis
You don’t need to be a part of MTD for IT to prepare tax updates every quarter. If your finance teams are used to a more infrequent rate, getting used to a quarterly update of your books can help with the eventual transition.
Choose HMRC-compliant MTD for IT software
You’ll eventually need to choose an MTD for IT software that is HMRC-recognised, if you haven’t already. Picking one ahead of the due date gives you enough time to adjust to the system and ensures you won’t be caught off guard when the time comes.
Why is the government moving to Making Tax Digital?
Making Tax Digital is designed to bring multiple benefits to sole traders, landlords, and the government alike. MTD should save time for business owners, while offering more automation for their financial records. That means more time spent working on their businesses, not their taxes. On top of this, MTD is designed to be more efficient overall.
For MTD for IT, more frequent tax submissions mean that both HMRC and business owners have greater oversight of their finances, making it easier for individuals to spot trends and adjust their spending accordingly. When submitting MTD for IT quarterly updates, taxpayers will be able to see a tax estimate, helping them keep closer track of the likely amount of tax they will owe at the end of the year.
Overall, MTD for IT helps to remove tricky paper trails and manual spreadsheets, while improving the accuracy of reporting.
What happens if partnerships don’t follow Making Tax Digital for Income Tax rules?
Currently, there are no penalties for partnerships because Making Tax Digital for Income Tax doesn’t yet apply to them. For sole traders or landlords for whom MTD for IT applies, there’s a penalty system that can lead to fines.
For the first tax year of MTD (April 2026 to April 2027), penalty points for late filing of quarterly tax updates will not apply. However, in the following tax year, April 2027 to April 2028, users will be penalised every time they miss a deadline:
Two penalty points in a 24-month period will result in a fine of £200
Each late submission from then on will result in an additional £200 fine
If you have one penalty point, it will be removed if no further points are incurred in a 24-month period
Late payments will have an interest rate of 7.75% added to the total cost.
It’s likely that when Making Tax Digital for Income Tax is made compulsory for business partnerships, similar rules will apply.
FAQs
What are the exemptions for Making Tax Digital?
HMRC may grant an exemption from MTD in a handful of cases. Most of them are reliant on your ability to use the new system. These include:
You have a health condition or disability that impacts your ability to use a computer, or accounting software
You don’t have access to reliable internet due to your location
Your age
Your religion
There are also exemptions for temporary issues such as serious life events or long-term hospital stays.
Does partnership income count for MTD for IT?
At present, the income you earn from a partnership doesn't count for Making Tax Digital for Income Tax. The only income that currently counts for MTD for IT is qualifying income from sole traders and landlords. This is expected to change, as HMRC plans to unveil a timeline to introduce partnerships to MTD.
Does a partnership need to register with HMRC?
Yes, if you’re the nominated partner. While you don’t need to sign up for Making Tax Digital, you do need to register your partnership with HMRC for Self Assessment. If you’re the nominated partner, you’re also responsible for sending the partnership tax return.
Disclaimer
The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.
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