If you’re self-employed, a landlord, or have any untaxed income, Making Tax Digital for income tax self-assessment (or MTD for ITSA) will transform the way you report and pay your income tax.
But with the timeline and rules always changing, it can be difficult to know when or how to comply with this new way of doing taxes.
Thankfully, we’ve got you covered. Here’s what you need to know.
What you should know about MTD for ITSA
How MTD for income tax will affect you
According to the Government, Making Tax Digital will help the UK become one of the world’s most digitally advanced tax administrations. MTD for VAT has already been in effect since April 2022 – and income tax is the next step on the road to digitalisation.
When MTD for ITSA rules come into effect, you’ll no longer need to submit your self-assessment tax returns to HMRC once a year. Instead, you’ll use MTD-compatible software to:
- keep digital records of your business income and expenses
- send quarterly updates to HMRC every three months
- finalise your business income using an end of period statement (EOPS) and a final declaration each year.
Self-assessment customers with more than one business will need to keep separate records for each income source.
While previously scheduled for April 2024, the Government recently pushed back MTD for ITSA a further two years to give taxpayers more time to get MTD-ready.
That means you won’t need to comply with the new rules until 2026 at the earliest – and a phased approach means they won’t apply to everyone at first, either. The proposed timeline is as follows:
- April 2026 – sole traders and landlords with incomes over £50,000 will need to comply with MTD for ITSA
- April 2027 – sole traders and landlords with incomes between £30,000 and £50,000 will need to comply with MTD for ITSA.
At the moment, there is no revised date for when partnerships will need to comply with MTD for ITSA. Meanwhile, the Government is conducting a review into how the initiative can accommodate the needs of smaller businesses in the future.
How to prepare for MTD for ITSA
There are a number of things you can do to get MTD-ready ahead of 2026.
Use MTD-compatible software
The first step is signing up for software that works with MTD for ITSA. Adopting the technology early will make the transition to this new way of doing taxes smoother.
While there are a lot of great cloud accounting packages to choose from, your accountant can help you weigh up your options.
Keep digital records
Once you’re set up with your software, we recommend keeping digital records as soon as possible. That way, you’ll be a Making Tax Digital pro by the time the rules are mandated!
Sign up for the pilot
The MTD for ITSA pilot is currently paused for newcomers, but it may be worth signing up once it reopens. The more time you have to get used to the new process, the easier it will be to stay compliant.
Work with experts
If you prefer, an accountant can handle your returns on your behalf. With professionals on the case, dealing with the upcoming changes to income tax self-assessment will be a breeze.
As experts, your accountant can set you up with cloud accounting technology that works for you, keep you updated about any changes, and offer general guidance on MTD for ITSA legislation.
Want to know more? Get in touch with our friendly team to find out how we can prepare you for MTD for ITSA.