Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)

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Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA)

"WHAT IS IT? DO I NEED TO WORRY ABOUT IT?"

You might have heard the term ‘making tax digital’ or MTD and wondered what it’s all about. Essentially, it is HMRC’s initiative to move us all into the 21st century when it comes to tax! And as usual, it’s taking longer than planned…but the deadline is getting closer.

In this blog, I explore what Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) means and what you need to consider in preparation for the deadline.

MTD FOR VAT REGISTERED BUSINESSES

For those who are VAT registered, we are already obligated to use the MTD systems for VAT returns. The great news is that it is making life so much easier.

Now, when we agree to work together, I generate the link, share it with you and as long as you know your Government Gateway ID and log-in details to your account, we are all good to go in about 5 minutes. It is great because I can get on with things quickly and if the VAT deadline is tomorrow (!), we are not panicking about registering, etc. We can just get on with it and make sure everything you need to do is done on time.

MTD FOR SELF-ASSESSMENT

However…for those not VAT-registered and requiring income tax self-assessment services, the onboarding is really not as straightforward…YET!

Right now, in order for me to submit your self assessment, I have to send a request to HMRC to be your tax advisor. They will then send you a letter in the post…which may or may not reach you in a timely manner. .

After a few weeks of waiting, we either celebrate as we receive the special code or we start the process again, when we get fed up of waiting!

At this stage, I haven’t even started helping you with the actual assessment yet!

I highlight this difference because for some of the effort we may have to go through in switching to MTD…I hope you can see it will be worth it!

WHAT IS MTD ITSA EXACTLY?

MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It’s an extension of the government’s Making Tax Digital (MTD) initiative, which already applies to VAT.

MTD ITSA focuses on streamlining the process of reporting income tax for:

Self-employed individuals.
Landlords with annual rental income.

Under MTD ITSA, you’ll need to:

1. Keep digital records of your income and expenses.

If you’re used to keeping paper records or spreadsheets, you’ll need to switch to MTD-compatible software to maintain your records digitally.

2. Submit quarterly updates to HMRC through MTD-compatible software.

Instead of filing a single Self Assessment tax return once a year, you’ll submit four quarterly updates to HMRC. These updates provide a snapshot of your income and expenses throughout the year.

3. File an End of Period Statement (EOPS) and a Final Declaration to confirm your annual income and tax obligations.

You’ll still need to finalise your accounts at the end of the year, but the process will be streamlined through digital tools.

THREE GREAT REASONS FOR QUARTERLY REPORTING, AS PART OF MTD

Firstly, (and this is absolutely amazing, I promise), quarterly reporting will mean that you always have access to more up-to-date information!

You will know how your business is doing in ‘real time’, not 12 months or more later and not on just an annual basis. You will be able to make informed business decisions and grow your business faster.

I actually encourage you to analyse your business numbers monthly. But quarterly is a good start. It opens so many doors and provides you with new opportunities to grow your business.

I admit that accountants’ fees may increase as we will be required to be involved more regularly, but in return you will get more support and help with making informed business decisions (and spotting things before it’s too late)…and that must be a good thing!

Secondly, you will no longer need to dread the tax bill – that huge lump sum which is suddenly sprung on you when you submit your annual form. You will know what you owe each time you submit the quarterly return, as this will be updated to reflect the annual payment.

Thirdly, it will force you to select software that works for you. Using supportive programs like Xero can reduce time and effort for a very low monthly cost. Credit control can be made easy and most likely you will get paid faster. Reports, checks and reconciliations are also much easier.

WHO EXACTLY DOES THIS EFFECT AND WHEN?

MTD ITSA will apply to:

Self-employed individuals and landlords with an annual business or property income exceeding £50,000, starting from April 2026.
Those with income between £30,000 and £50,000, starting from April 2027.

HMRC is still consulting on how MTD ITSA will apply to individuals earning below £30,000 annually, but it’s important to stay informed about future changes.

What Do You Need to Do to Prepare for MTD ITSA?

There are 5 steps I recommend at this stage.

1. Determine if MTD ITSA applies to you

Check your annual income from self-employment or property to see when you’ll need to comply with MTD ITSA.

2. Choose MTD-compatible software

A popular option and the one I recommend – Xero – is MTD-compatible. Its tools will help you maintain digital records and submit quarterly updates seamlessly.

3. Organize your records

Ensure your income and expense records are accurate and up to date. If you’ve been relying on paper receipts, it’s time to move to a digital system.

4. Learn the new process

Familiarise yourself with how to submit quarterly updates, End of Period Statements, and the Final Declaration…or speak to someone who knows all about it.

5. Seek professional advice

Navigating MTD ITSA can be complex, especially if you’re new to digital accounting. A trusted accountant will guide you through the transition and ensure compliance.

You don’t have to face this alone. I can offer expert guidance and create a plan to ensure compliance. I will also support you to get the systems and processes in place that will really help with preparing and submitting your quarterly updates to HMRC, ensuring accuracy.

In addition, I can help you manage the End of Period Statement to the Final Declaration, so you can focus on running your business, whilst making informed decisions because you know your numbers.

I am always here to answer questions and to support your growth.

While this blog aims to provide helpful information, it’s important to remember that every business and person is unique. So, before making any decisions, we highly recommend seeking professional advice. We want to ensure that you have all the support you need to make the best choices for your situation!

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