Making Tax Digital for Income Tax (MTD ITSA) begins in April 2026 for the first group of taxpayers, Tranche 1.
Little has been published about how the ending a business, known as "business cessation", affects whether a taxpayer must join MTD ITSA.
A Freedom of Information (FOI) request, FOI-12025/162436, about Cessations was submitted to HMRC in October 2024. This document summarises HMRC’s response in clear, simple terms.
This website is structured to meet the needs of two groups:
The Home Page is for Sole traders; Landlords (UK and foreign property); Advisers and agents preparing clients for MTD ITSA; and anyone unsure whether cessation affects MTD ITSA.
The other pages are for tax technical advisers and MTD specialists.
A search facility is provided to enable user to search for a particular aspect of MTD ITSA.
How HMRC decides who must enter MTD ITSA.
What happens if a business ceased during 2024/25.
How HMRC treats multiple trades or property businesses.
Whether pro-rating a part year income to derive a full year income, know as annualisation, applies.
Examples of counter‑intuitive outcomes.
These rules will only apply to a small number of Tranche 1 taxpayers. Around 20,000 Tranche 1 taxpayer cease trading completely each year so will not need to join MTD ITSA.
Ceased businesses do not join MTD ITSA but may still affect the individual taxpayer as the income of the ceased business continues to count towards the £50k threshold. This may result in outcomes that feel unfair – e.g. a £4k property business being mandated to join MTD ITSA.
HMRC does not annualise (pro‑rate) ceased income when checking the £50k threshold.
HMRC will use the business cessation fields in the 2024/25 SA103 and SA105 forms to determine those businesses that have ceased trading. Foreign property has no cessation field so it remains unclear how HMRC will identify ceased foreign property income prior to the MTD on-boarding deadline.
Government rules state that must join MTD on 6 April 2026 if both 1 and 2 below are true:
Your 2024/25 qualifying self‑employment + UK and foreign property income (known as qualifying income) is £50,000 or more AND
You still have at least one active qualifying source on 6 April 2026. [Note that this source could be less than £50,000]
You are not required to join if:
All qualifying sources ceased in 2024/25 OR
Your total qualifying income was below £50,000 OR
You only have non‑qualifying sources (PAYE, pensions, dividends) OR
You have applied for and obtained a digital exclusion from MTD ITSA: https://www.gov.uk/guidance/find-out-if-you-can-get-an-exemption-from-making-tax-digital-for-income-tax OR
Other exclusions apply. See https://www.gov.uk/guidance/check-if-youre-eligible-for-making-tax-digital-for-income-tax
This is summarised in a helpful diagram "Will Making Tax Digital affect me?" on the Association of Tax Technicians (ATT) website.
For the avoidance of doubt HMRC will notify you if it considers that you must join MTD ITSA. It then becomes your responsibility to physically sign up for MTD ITSA.
The SA103, self-employment, and SA105, UK property, tax forms include business cessation date boxes.
These override income values that are used to determine whether the source is active. It is thus essential that these boxes are completed when relevant.
The Foreign Property (SA106) has no cessation indicator so will require a manual process. This will affect around 2000 taxpayers. As noted above it remains unclear how HMRC will identify ceased foreign property income.
Annualisation is the estimation of full-year income for a business that has only traded for part of a year.
HMRC confirmed they will NOT annualise income from a ceased self-employment or property business.
This avoids inflating part‑year income (e.g., projecting £40k over 5 months into a hypothetical £96k).
Annualisation may still be used for continuing seasonal businesses. HMRC advised that further information is anticipated before the end of 2025.
This affects anyone who has a large MTD business that closed in 2024/25 AND has a small one that continue and they totalled more than £50k in 2024/25.
Even though you closed the large business in 2024 its turnover will count towards the £50k threshold and so you must register the small business for MTD ITSA. For example, if you have a self-employed business with a £70k turnover that closed in the year 2024/25 and a £4k ongoing property business then you must register for MTD ITSA.
The low turnover business will generally not be able to leave MTD ITSA for three years unless it ceases trading. There are exceptions; there is more information on the ATT website.
This website does NOT discuss what happens if a business ceases trading in tax year 2025/26. The ATT website provides more information in the Section "What if qualifying income ceases between submitting a tax return and the envisaged MTD start date"
In mid-November HMRC advised that further guidance on cessation is anticipated before the end of 2025.
This website site explains HMRC’s FOI-revealed position as of November 2025. This is not personalized tax advice.
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