The questions in Section 2 of FOI-2025/162436 were the most significant part of the request. The answer to Question 2B was a real eye-opener; it is somewhat controversial.
Please apply those rules to the following scenarios and state whether the taxpayer is included in, or excluded from, MTD Tranche 1; and if included which classes of business must be used (self-employment, property or both). If no recorded decision trees exist, please confirm that HMRC holds none.
SA103 business with £55k income; business ceases on 31/03/2025
As per question one, If qualifying income is over £50,000 for the 2024/25 tax year, businesses and landlords will ordinarily need to join MTD from 6 April 2026.
Where the business ceases on 31/03/2025 and there is no other continuing trade / qualifying income (i.e. income from self-employment or property), the customer will need to notify HMRC of cessation of that business. They would not need to comply with MTD for Income Tax for the 2026/27 tax year.
SA103 business with £40k income; business ceases on 31/03/2025 PLUS SA105 business with £20k income that is ongoing
MTD for Income Tax qualifying income includes income from: Self-employment (SA103) and Property (SA105). If qualifying income is over £50,000 for the 2024/25 tax year, businesses and landlords will ordinarily need to join MTD from 6 April 2026.
In this example, the combined qualifying income in the 2024/25 tax year is £60,000 (£40,000 (SA103) and £20,000 (SA105)). Even though one source of qualifying income has ceased, the customer would be required to use MTD for Income Tax obligations from 6 April 2026 for the remaining source of qualifying income, even if it is below the mandation threshold for that year. This is discussed in Counter-Intuitive MTD ITSA Regulations section here.
The customer’s property income reported on the SA105 will continue to be subject to MTD record keeping and reporting requirements, but no updates will be required for the ceased SA103 self-employment income source.
The text in red may be considered counter-intuitive and thus controversial.
SA103 business with £40k income; business ceases on 31/03/2025 PLUS SA105 business with £20k income; business ceases on 31/03/2025
As per Scenario A. There will no longer be any qualifying income from 2025/26 onwards (i.e., income from self-employment or property). The customer will need to notify HMRC of cessation regarding both income streams and will not be required to comply with MTD for Income Tax obligations.
SA103 business with £60k income; business continues PLUS SA105 business with £25k income; business ceases on 31/03/2025
Similar to Scenario B.
The qualifying income for tax year 2024/25 is £85,000, i.e. the combined income received from both self-employment and property income. The customer will need to meet the MTD obligation from April 2026 for the SA103 self-employment income. They will need to notify HMRC of the cessation of the property income reported on the SA105. Once notified, the customer will no longer need to meet the MTD for Income Tax obligations for the property income.
SA103 business with £40k income; business ceases on 31/03/2025 PLUS SA105 [summer lettings] business with £8k income; business ceases on 30/09/2024
This answer is the same as for Scenario C. i.e. There will no longer be any qualifying income from 2025/26 onwards (i.e., income from self-employment or property). The customer will need to notify HMRC of cessation regarding both income streams and will not be required to comply with MTD for Income Tax obligations.
The primary rule is the rule that excludes discontinued businesses so the pro-rate rule is no longer relevant.
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