MTD for ITSA
MTD for Income Tax Self-Assessment (MTD for ITSA) will change how millions of business owners and landlords report their earnings to HMRC. This change will be the most significant shakeup of Tax legislation in decades.
Under MTD for ITSA, sole trade businesses and landlords will need to keep and maintain digital records and use MTD-compatible software to manage, track and send updates to HMRC.
They’ll be required to send HMRC quarterly summary updates of their business income and expenditure.
While you may not have formally kept records up to this point, perhaps only by doing so to complete a Self-Assessment tax return can accounting software offer real-time record keeping, ensuring this process is as smooth as possible. Rest assured that while MTD for ITSA will require some work to ensure compliance, the benefits could be significant and help you better manage your taxes in the future.
The story so far.
Making Tax Digital is a government initiative that sets out a bold vision for the UK to have “one of the most digitally advanced tax administrations in the world”. Tt promises to “transform tax administration so that it is easier for taxpayers to get their tax right”.
The first stage of Making Tax Digital, MTD for VAT, began in 2019. It first required certain VAT-registered businesses to keep their digital records and use MTD-compatible software to submit their VAT returns electronically. The scope of MTD for VAT expanded on 1st April 2022, and all VAT-registered businesses are now required to follow these rules.
Business owners and landlords will no longer file an annual self-assessment tax return unless exempt from MTD for ITSA. Where a taxpayer falls into the MTD regime, they will need to keep digital records, submit quarterly reports to HMRC, and complete a year-end reconciliation and update process, broadly equating to the current self-assessment tax return filing.Requirements of MTD for ITSA
- Operate MTD from 6th April 2026 with their trading and property income chargeable to income tax and Class 4 NICs if their gross income from these income sources for a tax year exceeds £50,000
- Those with an income of more than £30,000 must start following the MTD rules from April 2027. Partnerships will be required to join at a date yet to be set.
- Keep their records digitally (for ITSA purposes only), provide digital quarterly updates and provide their ITSA return information to HMRC through MTD-compatible software.
- For each type of revenue (self-employment or property), send quarterly returns/updates of your business income and expenses to HMRC.
- Finalise your business income by submitting a final declaration each year.
Will all self-employed people and landlords have to go digital?
The short and simple answer is yes. Unless you have an exemption, if you meet the criteria, you must comply with MTD for ITSA if you’re one of 4.2 million taxpayers earning above £50,000 from business and property. In that case, this will mean managing, tracking and sending quarterly summary updates of business income and expenditure to HMRC.
Meanwhile, those earning £30,000 – £50,000 will need to do the same effectively from April 2027; sole traders and landlords affected by the changes can voluntarily sign up for MTD for ITSA before those dates.
What will I have to do under the new rules?
If you’re a self-employed business owner and landlord and you’re affected by MTD for Income Tax, you’ll have to take the following actions from 6th April 2024
- Keep records of your business income and expenses digitally.
- For each type of revenue (self-employed business or property), send quarterly updates of your business income and payments to HMRC.
- Finalise your business income by submitting an end-of-period statement (EOPS) for each source of income, along with a final declaration.
- While you may not have formally kept records up to this point, perhaps only doing so to complete a Self-Assessment tax return, accounting software can offer real-time record keeping, ensuring this process is as smooth as possible. Rest assured that while MTD for ITSA will require some work to ensure compliance, the benefits could be significant and help you better manage your taxes in the future.
Preparing for MTD for ITSA
Regardless of whether you follow the tax year, you’ll have a digital start date of 6th April 2026.
While this may feel like a long way away, it’s always worth getting your ducks in a row early. You can do that by signing up voluntarily to get used to MTD rules. You can find out whether you’re eligible for early MTD for ITSA registration here or speak to your accountant or bookkeeper.
If you own multiple businesses, the income earned from all of them contributes to the £30,000-£50,000 threshold.
Sending quarterly updates
Once you’ve signed up to MTD for Income Tax, you’ll need to send a summary of your business income and expenses to HMRC every three months using MTD-compatible software
The deadlines for submitting quarterly updates will be the same for everyone who has to follow the MTD for Income Tax rules. From the start of the tax year on 6th April, these deadlines are:
- 5th August
- 5th November
- 5th February
- 5th May
At the end of the tax year, you’ll need to finalise your business income by completing an end-of-period statement (EOPS) for each source of income and a final declaration that replaces the current Self-Assessment tax return.
This process lets you confirm that the updates you’ve sent are correct, add details about personal income or reliefs, or make any other necessary adjustments. As with the current Self-Assessment process, you’ll have to submit the EOPS and final declaration and pay the tax you owe by 31st January of the following year.
To find out more above MTD for Income Tax, check out our free guide here
Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so it should not be relied upon. You are responsible for complying with tax law. Individual circumstances do vary, and if you feel that the information provided is beneficial, you must seek professional independent advice. If you take action as a result of reading this article before receiving our written endorsement, we do not accept any responsibility for any financial loss incurred.
If you require any further information regarding the content included on this page, and you don’t already have an accountant, why not contact us today?
