How Will Making Tax Digital Affect Non-UK Residents And Non-Doms?
The next stage in the rollout of Making Tax Digital (MTD) will be MTD for Income Tax, which will be introduced in 2026. This will transform the way that self-employed people and landlords pay their taxes in the future. How should you report foreign sources of income, and how are you affected if you’re a non-UK resident or a non-dom? Keep reading this helpful guide to learn more about MTD for Income Tax Self-Assessment (MTD for ITSA).
The MTD for ITSA was due to come into effect from April 2024 but has now been postponed to April 2026.
What Is Making Tax Digital?
Making Tax Digital is a government initiative that aims to make the UK’s tax administration more accurate and efficient through digitisation. By making tax administration more digitally advanced, it’s hoped that the MTD initiative will make it easier for taxpayers to keep on top of their finances and get their tax right.
The first stage of MTD, called MTD for VAT, was introduced in 2019 for all VAT-registered businesses with an annual turnover above the VAT registration threshold. These businesses had to start keeping digital financial records and sending their VAT return information to HMRC through MTD-compatible software.
In 2022, MTD for VAT was expanded to include VAT-registered businesses with a taxable annual turnover below the VAT registration threshold. However, some businesses chose to comply with MTD rules before this was necessary in order to take advantage of MTD benefits, such as reducing manual processes and increasing accuracy through the use of MTD-compatible accounting software.
MTD-compatible software is essential for all stages of Making Tax Digital. Using compatible accounting software can help you manage your finances more effectively and reduce the possibility of making mistakes on your tax returns.
MTD for ITSA
Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is the next stage in the rollout of Making Tax Digital. From 6th April 2026, self-employed people will have to use MTD-compatible software to keep digital financial records and then send this data to HMRC each quarter (i.e., every three months). In addition to these quarterly reports, self-employed individuals will also have to submit a final declaration at the end of the tax year, replacing the current Self-Assessment tax return.
By sending quarterly financial reports, business owners and landlords will have a better idea of roughly how much tax they owe throughout the year, helping them save enough money before the final tax deadline. When submitting the final declaration, they’ll have the opportunity to make any final corrections and adjustments so that they’re paying the right amount of tax.
Who Is Affected by MTD for ITSA?
You’ll have to comply with the new MTD for ITSA rules from 2024 if you’re a self-employed business owner or landlord with an annual business or property income above £10,000.
If you’re a business owner and also a landlord, the £10,000 threshold is for your combined income from both revenue streams. Therefore, if your business income and rental income both individually amount to less than £10,000 but exceed £10,000 when added together, you’ll need to comply with MTD for ITSA rules.
If you’re both employed and self-employed (e.g., you have a 9-5 job and also your own business in your spare time) or you’re both employed and a landlord, then your PAYE income doesn’t count towards the £10,000 threshold. You should only count income from your own business or rental income from your properties.
However, income from foreign sources will count towards the MTD for ITSA threshold if you’re a UK resident. For example, if you have rental properties in another country, this rental income will still be subject to UK tax laws, including Making Tax Digital. Therefore, you’ll need to include this overseas income in your reports to HMRC and include it in your final declaration.
What About Non-UK Residents and Non-Doms?
Unlike UK residents, non-UK residents and non-doms will not have to report and pay tax on their overseas income. However, MTD for ITSA rules still apply to any UK-based sources of income.
Therefore, if you’re a non-resident or non-dom with business or rental income in both the UK and abroad, you’ll need to report your UK-based income and exclude your overseas income to see if you exceed the £10,000 threshold. You need to report your UK income even if you don’t owe any tax.
Although this may sound confusing at the moment, landlords and self-employed individuals have until April 2026 to prepare for these changes. This gives you plenty of time to discuss your finances with an accountant and find MTD-compatible software that works for you.
What Is a Non-Dom?
Non-dom is short for non-domiciled individual. This means that you’re a UK resident but your permanent home (domicile) is abroad.
Non-dom describes someone’s tax status, not their nationality or residency status. In the UK, non-doms pay tax on UK income but don’t have to pay tax on any income from overseas, unless this money is paid into a UK bank account.
To become a non-dom, you usually have to be born in a different country or choose to live indefinitely in another country. There are also various other rules surrounding the acquisition and maintenance of a non-dom status, and you’ll have to pay an annual charge if you want to remain a non-dom.
Getting Ready for Making Tax Digital
Making Tax Digital is designed to make it easier for taxpayers to get their tax right and keep on top of their finances. With the use of MTD-compatible accounting software, you’ll be able to easily track your finances, automate various administrative tasks and send your quarterly financial reports straight to HMRC.
If you’re struggling with the many rules surrounding MTD and MTD for ITSA, make sure you speak to an accountant for guidance. If you believe you’ll be unable to comply with these new rules, you need to contact HMRC as soon as possible to explain your situation and work towards a solution. In some cases, you may be able to apply for an exemption, especially if you feel that you fit the criteria for ‘digital exclusion’.
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