In December 2022, the government announced a significant policy shift that offered welcome breathing space for thousands of small businesses and sole traders — particularly those in the construction industry.
The rollout of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA), originally due to take effect from April 2024, was delayed by two years.
Under MTD for ITSA, self-employed individuals and landlords with income above a threshold would be required to:
- Keep digital financial records
- Submit quarterly updates to HMRC (instead of annual returns)
- File year-end finalisations using approved software
The original plan aimed to modernise the tax system but drew criticism from small business groups who warned that it placed an undue burden on those least equipped to manage additional administrative tasks.
Following consultation, the government adjusted the timetable:
- Self-employed individuals and landlords earning over £50,000: MTD applies from April 2026
- Those earning between £30,000 and £50,000: MTD applies from April 2027
- Those earning below £30,000: future inclusion under review
The announcement also hinted at further simplifications to the system before it becomes mandatory, such as streamlining reporting obligations and easing penalties during the transition.
Why This Matters to Construction Clients
The construction sector is home to a large population of sole traders, subcontractors, and self-employed individuals operating through the CIS (Construction Industry Scheme). Many of these individuals would have faced immediate challenges with the original 2024 MTD deadline — especially those without up-to-date software systems or digital bookkeeping skills.
The delay provides major benefits:- Extra preparation time for subcontractors and sole traders to transition gradually to digital record-keeping
- Reduced risk of filing errors and non-compliance penalties during a period of high industry inflation and project cost pressures
- Opportunity for businesses engaging subcontractors to assist in awareness and preparation campaigns, safeguarding their supply chains from disruption
Importantly, even with the delay, MTD is not going away. Contractors should view the extra time as a strategic advantage — using it to gradually embed better financial hygiene across their workforce.