Making Tax Digital
To make the guidelines digestible, we’ve put together information below on MTD for ITSA. The new initiative has created some challenges for business owners and landlords, and you maybe unsure where to go next. Please contact us for further support and to find out how to make MTD work for you.
What is MTD for ITSA
Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) will require the self-employed and landlords to use digital software to keep records and provide HMRC with quarterly updates on their income and expenditure.
The Government recognise this requires a significant change in bookkeeping and recording for the self-employed and landlords. They have announced a phased introduction of quarterly reporting from April 2026 for those whom have income over £50,000 and April 2027 with income of over £30,000.
In Summary
Making Tax Digital for Income Tax is a new way of reporting income and expenses which will replace the current Self-Assessment tax returns for sole traders and landlords.
It will require the taxpayer or their agent to:
• Use software that is compatible with MTD for ITSA
• Keep digital records of business transactions
• Send quarterly updates to HMRC which summarise those business transactions.
• Provide details of any tax and accounting adjustments and reliefs to finalise your taxable income from property and self-employment.
• Confirm the information you have provided is ‘complete’ by making a ‘Final Declaration’ by 31 January the following year. This will be similar to Self-Assessment tax returns and include other income sources and information such as tax allowances and reliefs you wish to utilise.
Mandatory use of MTD compatible software and quarterly reporting to HMRC will apply to self-employed individuals and landlords:
• From April 2026 to those with a total qualifying income exceeding £50,000; and
• From April 2027 to those with a total qualifying income between £30,000 and £50,000
• From April 2028 to those with a total qualifying income between £20,000 and £50,000.
Government Review
HMRC said the inclusion of partnerships and Limited companies has been postponed with a commitment to introduce MTD for these entities at a later date.
The Government will review the needs of smaller businesses with turnover under the £20,000 threshold. They will consider how MTD for ITSA can be shaped to meet the needs of smaller businesses and the best way for them to fulfil their Income Tax obligations, as well as inform on the approach of any further roll out of MTD for ITSA after April 2027.
How do tax payers benefit from MTD for ITSA?
MTD has the potential to create a more efficient tax-based workflow as your income and expenditure records are in real-time digital format. This will possibly lead to better financial projections for your business which clients can plan for.
HMRC say, “Evidence from the delivery of MTD for VAT indicates that, once businesses have adapted to keeping closer to real-time digital records, they will find the new process make it easier for them to get their tax affairs right first time and reduce the potential for errors”. MTD intends to help people budget for their tax bill more effectively and reduce the element of human error.
Following the end of the tax-year
We will make any final adjustments to your business income and expenses and report all other income sources e.g. dividends, interest, employment income and capital gains calculations, and make a final declaration to confirm the information is complete and accurate. This will work very similar to the Tax Return you are currently used to. HMRC will then confirm the tax you owe, payable by 31 January the following tax year.
MTD for ITSA is a fundamental change to tax reporting and will replace the Self-Assessment tax return with a final declaration.
Specific exemptions from MTD will be introduced automatically
For foster carers, individuals without a National Insurance number, Trusts and Trustee’s and personal representative of someone who has died. You can apply for a Digital exclusion for MTD where it’s not practical for you to use digital software. This is based on age, disability, practicing members of a religious society whose beliefs are incompatible with using electronic communications.
What if my income subsequently drops below the threshold
Once an individual is mandated into MTD for ITSA, they will only become exempt if their qualifying income falls below the £30,000 threshold for three consecutive tax years.
What are quarterly submissions
Four reports in each accounting period will be the minimum requirement under MTD for income tax. A business that aligns to the tax year (6 April – 5 April) would need to submit at least the following reports for the 2026/27 financial year:
• 1st: Due by 7 August 2026 (covers 6 April 2026 – 5 July 2026)
• 2nd: Due by 7 November 2026 (covers 6 July 2026 – 5 October 2026)
• 3rd: Due by 7 February 2027 (covers 6 October 2026 – 5 January 2027)
• 4th: Due by 7 May 2027 (covers 6 January 2027 – 5 April 2027)
The period covered by each quarterly submission within a tax year will be cumulative. This means that taxpayers will not need to resubmit a historic update in the event there is an error.
How will HMRC deal with missed deadlines
We understand HMRC plans to introduce a points system and quarterly fines for missed and late submission. Late submission penalties work on a points-based system and for each late submission taxpayers will receive a penalty point until they reach the penalty point threshold (4 points).
This will will trigger a financial penalty of £200 after reaching the 4-point threshold. Penalty points will expire 2 years after the missed submission, provided all future submissions are made on time.
Tax Calculations
HMRC are planning to provide individuals with estimated tax calculations. This is based on the figures reported quarterly, to help you budget for the tax due. Although the due dates for payment will, at least initially, remain unchanged.
In conclusion
This is out of our control and the biggest overhaul to HMRC systems we have seen in years.
We may all have to change our habits, routines and behaviors as quarterly reporting becomes the new norm. And yes, it’s frustrating, but we are here to support you through the change. We would be happy to review your working processes, support you with the change and introduce technology that fits your business.