Tax changes: Are internationally mobile employees prepared?

The new requirement is part of HMRC's Making Tax Digital for Income Tax (MTD for IT) and will require certain self-employed individuals and landlords to submit digital accounting records of income and expenditure quarterly using recognised software. This is the most significant change to reporting of income since self-assessment was introduced over 30 years ago.

It fundamentally changes the way in which taxpayers mandated into MTD are required to report their income to HMRC. From the start of November 2025, HMRC has started issuing letters based on 2024/25 tax returns that explain if the taxpayer should be within MTD from April 2026.  

Who will Making Tax Digital for Income Tax apply to and when?

MTD for IT requirements will apply to self-employed individuals and landlords with gross ‘qualifying income’ above the relevant threshold – broadly their combined income from trading and property, before expenses and tax are deducted.

The compliance date depends on their qualifying income. From 6 April 2026, taxpayers will be mandated into MTD for IT if their qualifying gross income is over £50,000; from April 2027 the threshold is £30,000 and from April 2028 the threshold is £20,000.

While nothing has been confirmed regarding MTD for IT for taxpayers with qualifying income below £20,000, the Government has set out plans to expand MTD for IT as part of its digital roadmap. This will potentially bring more sole traders and landlords who have income below the £20,000 threshold into MTD for IT in the future.

What about internationally mobile employees?

It's common for internationally mobile employees to rent out their home while on assignment. You may expect an assignee moving overseas and receiving rental income from a UK property to be within Making Tax Digital. However, an assignee receiving foreign rental income while on assignment in the UK may also have to comply with MTD in due course.

It should be noted that, while there are certain exclusions from MTD, such as 'digitally excluded', there's no blanket exemption for internationally mobile employees. However, internationally mobile individuals without a National Insurance number as of 31 January before the start of a tax year are exempt from MTD for IT for that coming tax year.

In the Spring Budget, a deferral of 12 months until April 2027, was announced for taxpayers who complete pages SA109 supplementary pages as part of their self-assessment tax return. The SA109 pages related to residence, remittance basis, claiming a personal allowance as non-resident and so on, which many internationally mobile employees are required to complete.

Many internationally mobile employees are likely to benefit from this deferral. Unfortunately, at the time of writing, further guidance has yet to be issued, and the impact of MTD for IT for internationally mobile employees beyond this deferral is yet to be fully determined.

Overall, significant questions remain in relation to this group of taxpayers, and we wait for answers on how MTD for IT will work in practice. For example:

• if an assignee is mandated into MTD for IT but is eligible for, and claims to exclude, foreign income under the Foreign Income and Gains (FIG) regime, this would seem an administratively burdensome method of reporting income when ultimately no tax is due
• assignees on an Appendix 6 modified payroll and the interaction with MTD for IT – whether such individuals are to be exempted from the requirements or will have to use MTD for IT and the practical issues in doing so.

New penalty regime for late payment and late filing

A new late payment and late filing penalty system applies to MTD for IT.

Late filing penalties

The late filing penalty system is points based. Penalty points will apply for late filing of both year-end and quarterly submissions once a taxpayer has been mandated into MTD for IT.

One penalty point is given for each late filing, and once four points is reached on quarterly filing, a £200 financial penalty is charged, with another £200 penalty for any further late filings. For annual returns, just two points is needed for the £200 penalty to apply.

A welcome development was announced in the Autumn Budget: taxpayers joining MTD IT in April 2026 won't receive late submission penalties for quarterly updates during the tax year 2026/27.

This 'soft landing' won't apply to those joining MTD from April 2027, nor does it apply to the end of year tax return for 2026/27.

Late payment penalties

A new, late payment penalty regime also applies for those within MTD for IT:

• The first penalty is equal to 3% of the tax outstanding 15 days after the due date (day 15)
• If the payment is not made by day 30, a further penalty equal to 3% of the amount due at that point is charged
• After day 30, a further 10% per annum penalty is charged for every day tax is unpaid.

Appeals against penalty points can be made on the basis of a reasonable excuse.

What employers with globally mobile workers need to consider

The move from filing just one tax return a year to submitting information to HMRC quarterly is a significant change for taxpayers who fall within MTD for IT. This change may affect more internationally mobile employees as the threshold is reduced and the one-year deferral comes to an end.

Employers will need to consider their tax policies and the provision of tax support they're willing to provide for their internationally mobile assignees moving to or from the UK, and the changes to how certain individuals report their income as result of having rental income. The costs related with extra reporting requirements and the administrative burden of quarterly returns on assignees is also a consideration.

If an employer offers no support and internationally mobile assignees are responsible for quarterly filing themselves, they'll have to use MTD-compatible software, which is likely to be an administrative burden on the individual.

Equally, employers who prepare returns in-house as part of a modified payroll or tax support package will need to ensure that they use MTD-compatible software for both the required quarterly submissions and the year-end return.

It's important that employers and their internationally mobile employees are aware of how MTD is changing tax reporting and adapt their global mobility tax policies to include this significant change.

For more insight and guidance on MTD, get in touch with Matthew Wilson.