This part of the website is for Tax Professionals and others interested in MTD ITSA.
Its purpose is to:
Highlight issues that were identified when analysing a recent HMRC response to a FOI request FOI-2025/164236.
Provide the detail of the FOI requests so that you can make your own judgments.
The Cessation Rules will only apply to a relatively small number of Tranche 1 taxpayers. Around 20,000 Tranche 1 taxpayers cease trading completely each year so will not need to join MTD ITSA.
A ceased business does not join MTD, but the individual taxpayer may still be mandated into MTD due to threshold rules. The income of the ceased business still continues to count towards the £50k threshold. This may result in outcomes that feel unfair – e.g. a £4k property business being mandated.
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.
The SA103, self-employment, and SA105, UK property, tax forms include cessation tick‑boxes.
These override income values for determining 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. It is 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 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. Attention is drawn to the answer to Question 2G. HMRC advised that further information is anticipated before the end of 2025.
This affects anyone who has a large MTD business that closed in 2045/5 AND have a small one that continue and they total more than £50k in 2024/25.
Even though you closed the large business in 2024 its turnover 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 relevant part of the HMRC response to Question 2B is set out below:
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. 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.
On 24 November HMRC added a new section "Ceased Income Sources" to the HMRC webpage Work out your qualifying income for Making Tax Digital for Income Tax. This new section states that closed business count towards the £50k total.
The HMRC response to FOI-2025/186115 also confirmed the original answer to question 2B in FOI-2025/162436.
The low turnover business will generally not be able to leave MTD ITSA for three years unless it ceases trading. It must continue to report even if the turnover fall below £1000 which is the current threshold for not reporting under Self Assessment. A FOI request has been made to identify whether there are exceptions.
There is strange consequence hidden in the MTD ITSA rules. A taxpayer can be dragged into MTD because their last tax return shows income over £50,000 — even if the business that generated that income has already ceased. Once inside, any remaining small business must keep submitting digital quarterly updates, even if its turnover later falls below £1,000.
There appears to be no way out unless the small business is formally ceased, which makes no practical sense and acts as a barrier to small businesses continuing to trade.
It will be interesting to see if HMRC seeks to justify this or attempts to remedy it.
This website does NOT discuss what happens if a business ceases in tax year 2025/6. 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" FOI request FOI-2025/188020 has been issued about this.
In mid-November HMRC advised that further guidance on cessation is anticipated before the end of 2025.
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