Running a self-employed business? Receiving property income as a landlord? This one may have slipped by unnoticed - you not have a bit more time to get up to speed with the Making Tax Digital for Income Tax Self Assessment rules!
Whilst this is just a delay, it does give a bit more time to prepare and get your digital solution in place in good time.
You might be aware of Making Tax Digital (MTD) already. It’s the UK Government’s initiative for digitising and streamlining the tax return process. VAT-registered businesses are already submitting quarterly VAT returns digitally to HM Revenue & Customs (HMRC).
The good news is that HMRC has pushed back the start date of the next stage of MTD – the introduction of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)
MTD for ITSA won’t now become mandatory until 2026 – but the switch to digital records is still needed and is likely to be a BIG change to your record-keeping and your tax return process.
So, what do you need to know about MTD for ITSA and digital record-keeping?
What were the key changes made to MTD for ITSA in December 2022?
MTD for ITSA was due to become mandatory for certain self-assessment taxpayers in April 2024. However, on 19 December 2022, HMRC announced some key changes to the next stage of the MTD initiative, including a postponement of the start date.
From 2026, if you’re a self-employed business or a landlord with combined annual business and/or property income above £50,000, you’ll need to follow the rules for MTD for ITSA.
These are the main changes that HMRC has made:
The minimum relevant (self-employed and rental) income reporting level was increased from £10,000 to £50,000. This now means that self-employed businesses and landlords earning up to £30,000, will no longer need to comply with the rules. However, those with a combined annual business and/or property income of less than £50,000, but more than £30,000, are now mandated to join the MTD for ITSA scheme in 2027
The situation for landlords and sole traders earning less than £30,000 will be reviewed to see if MTD ITSA can be shaped to meet the needs of smaller businesses
Partnerships will not be brought into MTD for ITSA, as previously planned, in 2025
The points-based penalty system will be extended to MTD for ITSA filers when they join
What does MTD for ITSA mean for affected self-assessment taxpayers?
Once MTD for ITSA begins, this will mean that you, or your nominated tax agent, will need to:
Keep digital records of all business transactions – HMRC is making it mandatory for self-employed businesses and landlords to keep digital records of all income and expenditure. This means either pulling the data from your business bank account, or scanning and digitising the source documents for all your transactions.
Submit quarterly updates to HMRC – you’ll need to categorise all your transactional data to fit HMRC’s basic category codes. This digital data must be collected together every three months and submitted as a quarterly update to HMRC’s digital portal.
Submit an annual end-of-period statement – at the end of each tax year, all your transactional data from the year must be summarised in an end-of-period statement (EOPS). At this point, you (or us as your tax adviser) can then make any final adjustments to your income and expenditure, ready to submit your tax return.
Finalise your tax return for the year – once all data is submitted and all adjustments have been made, a final tax return can be submitted to HMRC. Your tax liability for the tax year will then be calculated and HMRC will advise you what you owe.
Pay any tax due to HMRC – once you know your tax liability for the tax year, you’ll then need to pay any tax due by 31st January of the following year – and make any payments on account at the same time, with a further payment by 31st July, depending on your ongoing tax liabilities.
When does MTD for ITSA go live?
At present, MTD for ITSA is now scheduled to come into effect from April 2026. That may sound like a long way off, but there’s a lot to prepare, plan for and organise before the 2026 deadline hits. And failing to meet the new rules could end with you facing an HMRC penalty.
Getting your systems and processes ready for this big shift in taxation will take time. So, we advise starting the planning process soon, so you’re ahead of the curve and ready to go digital when the MTD for ITSA rules kick in for self-assessment taxpayers.
NOTE : From 2026/27 onwards, your profits will always be taxed on a tax-year basis. Where your business year doesn’t end between 31 March 2026 and 5 April 2026, the 2025/26 tax year will be a transitional year, bringing into account all profits up to the end of that year.
Talk to us about MTD for ITSA
If you’re concerned about the impact of MTD for ITSA, please do get in touch with us. We’ll help you understand the true impact of the legislation and the steps you’ll need to take.
Once you’re up and running with digital quarterly returns, there will be plenty of benefits to moving your record-keeping and accounting into the digital space.
Better visibility of your income and expenditure
Improved control over your business numbers
A clearer idea of your tax liabilities for the year
Get in touch to get set up for MTD for ITSA.