Originally planned for April 2024, Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) was delayed until April 2026, which means it’s now only a year away. And while it’s tempting to think you’ve got ages to get everything sorted, it definitely pays to understand exactly what impact it’s going to have on how you organise yourself and your business.
So, what exactly is MTD for ITSA, who does it affect and what changes will you have to make? We take a closer look.
What is MTD for Income Tax Self-Assessment?
MTD for ITSA is part of the government’s 10-year strategy to make it easier for individuals to manage their financial affairs and get their tax right by using software to keep digital records.
The first stage of Making Tax Digital, MTD for VAT was launched back in 2019 and MTD for ITSA is the next phase in transforming the UK’s taxation system.
Replacing the current system of annual Self-Assessment tax returns, self-employed business owners or landlords will need to submit four quarterly updates about their business income and expenses rather than submitting a yearly Self-Assessment tax return to HMRC.
Who will be affected by MTD for ITSA?
MTD for ITSA will apply to anyone who is self-employed as well as landlords with qualifying income. It will be introduced in two phases:
- from April 2026, it will apply to anyone with a taxable income over £50,000
- from April 2027, it will apply to anyone with a taxable income over £30,000.
Are there any exemptions?
Anyone who does not have a National Insurance number on 31 January will be exempt from MTD for ITSA for the following tax year. This is an automatic exemption, so you won’t need to register for it.
MTD for ITSA does not apply to people who work through a limited company, and currently there is no date set for when general partnerships and LLPs will need to adopt MTD for ITSA.
So, what does it mean in practice?
From 6th April 2026, you will need to:
- Keep your records digitally: all your business income and expenses will need to be kept in a digital format including all your income from self-employment or property.
- Send quarterly updates to HMRC: every three months you will need to send a summary of each type of revenue (self-employed business or property) to HMRC. While this might sound daunting, it will allow HMRC to provide you with an estimated tax bill, so you don’t have any last-minute nasty surprises.
- Complete a year-end summary process: at the end of the tax year, you’ll submit an end of period statement (EOPS) and final declaration to HMRC confirming the figures you’ve already submitted with any accounting adjustments. You’ll also have to report any other sources of income such as bank interest and capital gains.
- Use MTD compatible software: to keep digital records you need to use MTD compatible accounting software such as FreeAgent or Xero. These will allow you to pull your bank transactions directly into the software and manage all your expenses and invoicing from one place.
What should you do next?
While MTD for ITSA is still a year away, you may be able to sign up before then and make use of the new digital recording and reporting methods. You can check here whether you are eligible and what you would need to have in place.
And even if you don’t want to sign up yet, if you’re not already using accounting software, we strongly advise you start using it as soon as possible. Not only will it help you keep on top of all your records, but it will make filing your tax return so much easier. FreeAgent and Xero are favourites of our clients, but HMRC also provide a useful list of MTD compatible software, so have a look through and see which one you find easiest to use.
These changes are significant, so we can’t stress enough the importance of being prepared and making sure you’re comfortable with recording all your income and expenses digitally. And, of course, if you do have any questions about how MTD for ITSA will affect you or need some advice on choosing the right software for your needs, we are on hand to help.
