We’ve already adjusted to Making Tax Digital for VAT...
…and now, the finance world is bracing itself for the introduction of Making Tax Digital for Income Tax Self-Assessment (ITSA), which is due to be phased in from April 2026.
(It was meant to come into play this year, in April 2024, but given that it’s going to shake up the tax system quite significantly, the government eventually decided that we businesses need a little bit longer to get prepared!)
What is MTD for ITSA, and how will it work?
MTD for ITSA will require self-employed individuals and landlords who earn more than £50,000 per year to keep digital records and provide HMRC with quarterly updates on their income and expenditure online, via accounting software that is compatible with the scheme.
The reporting periods will be cumulative – i.e. they will contain information on all income/ expenditure from 6th April, until the financial year is complete on the following 5th April. This means the reporting periods will be as follows:
- 6th April to 5th July
- 6th April to 5th October
- 6th April to 5th January
- 6th April to 5th April
If you prefer, you can ask for these reporting periods to be tied in with month ends – but if you do this, bear in mind that the due dates for each of the submissions will not change.
Will MTD for ITSA affect you?
You’ll need to make sure you’re ready for MTD if you’re self-employed or collecting income from property before 6th April 2025.
You will be exempt from MTD ITSA if:
- You do not have a UK National Insurance number
- You are a foster carer or shared lives carer and your only income is qualifying care income
You might also be able to get an exemption if you are what HMRC calls ‘digitally excluded’: for example, you have an unreliable broadband connection, or you have a disability that prevents you from using computers.
If you’re not 100% sure whether you are (or you will be) eligible, don’t worry too much – HMRC will let you know. They will review your self-assessment tax return for the 2024/25 period (which you will submit on or before 31st January 2026) and will write to you with information on the steps you need to take to be compliant.
The next steps
2026 seems like an age away – but I promise it’ll come around quicker than you think. If you meet the above criteria, the best thing you can do is familiarise yourself with your new responsibilities under the scheme, and make sure your accounting system is set up to accommodate the digital element.
I can certainly assist you with this. You can also check this list from gov.uk to see if the accounting package you currently use has the required features for MTD ITSA and will be able to communicate with HMRC’s API platform.
If you are currently earning less than £50,000 per annum, and you’re not expecting this to change in the next few years, you might think you’re out of the woods. Unfortunately, however, HMRC will be reducing the qualifying income threshold for MTD for ITSA to just £30,000 as of 6th April 2027. So, if you are typically on a slightly lower income – between £30,000 and £50,000 – you have a bit longer to get your affairs in order, but this still very much needs to be on your radar.
We are expecting HMRC to roll out MTD ITSA for partnerships. I’ll let you know when the dates for partnerships have been announced.
