Making Tax Digital
for Income Tax Self-Assessment (MTD ITSA)
the big change will be that all self-employed businesses and landlords with income over £50,000 will be required to keep digital records and submit via accounting software.
What is Making Tax Digital?
HMRC wants to be one of the most digitally advanced tax administrations in the world. It says that Making Tax Digital (MTD) is making fundamental changes to the way the tax system works. To make tax administration effective, efficient, and easier for taxpayers to get tax right.
It also hopes that it will avoid tax errors, and this will result in more than £9 billion worth of revenue every year.
You may have already heard of MTD as it has been in place for VAT since April 2019 and lots of accounts software companies have been advertising their solutions.
Making Tax Digital for
Income Tax Self-Assessment (MTD ITSA)
From 6th April 2026, the big change will be that all self-employed businesses and landlords with income over £50,000 will be required to keep digital records and submit via accounting software.
The income test is applied to turnover in the business (not profit) and gross rents for landlords. If you have both trading and rental income, then the amounts are added together to test against the £50,000 limit. For example, if you have rental income of £14000 and self employed turnover of £38,000 you will be required to comply with MTD ITSA.
New MTD ITSA exemptions have been announced for foster carers and those unable to get a national insurance number.
Under MTD ITSA everyone will need to send quarterly summaries of their income and expenses and an end of period statement (EOPS). This means it will now be 5 returns a year instead of 1.
Separate quarterly returns will need to be submitted for self-employed income and property income. Then this will be brought together in the EOPS. The quarterly updates will be cumulative. This means that any errors in previous quarterly submissions can be corrected in the next quarter, rather than having to go back and resubmit earlier reports.
There will be no more logging in into HMRC once a year or handing paperwork to us annually. Everyone will have to be done digital and quarterly.
Although the frequency of reporting is to change, the timing of tax payments will not. The current system of payments on account and balancing payment by 31 January after the tax year is expected to remain in place for the foreseeable future.
Don’t panic! We are here to help you and make the process as easy as possible. Using software will make this much easier than using spreadsheets and paper records and you will be able to plan for your tax bill more easily.
What are the MTD for ITSA Rules?
From 6th April 2026, all self-employed business owners and landlords With income of £50,000 or more in the 2024-25 tax year, will need to:
- Sign up for MTD for ITSA via HMRC’s website – we can do this for you
- Keep digital business records
- Use MTD-compatible accounting software such as Xero, FreeAgent or Quickbooks
- Send quarterly business income and expenses updates to HMRC via the software (mentioned in point above)
- Submit the EOPS to HMRC. This will replace the annual Self-Assessment tax return.
Self employed business owners and landlords with qualifying income over £30,000 will use MTD from April 2027 and those with qualifying income over £20,000 will have to comply from April 2028.
Exemptions
You will be exempt from using MTD IT if you’re:
- qualifying income is less than £20,000
- digitally excluded
- completing a tax return as a trustee
- a person that does not have a national insurance number
- completing any tax return as a personal representative of someone who has died
- a Lloyd’s member, in relation to your underwriting business
- a non-resident company
-
What you will need to do
and how can we help?
Maintain Digital records
This doesn’t mean you have to keep all your receipts electronically, but your business records must be kept in a digital format. The easiest way to do this will be to use accounts software. We can advise on the right one for you and help with training, set up and discounts.
You will still be able to use spreadsheets but you will need to use bridging software to submit to HMRC, so it may be easier to use the software directly.
We recommend opening a Mettle bank account and using FreeAgent, which comes free with Mettle
Quarterly updates
These will include details of the income and expenses for each self-employment and property business during each quarterly period. If you have more than 1 property, you won’t have to split by property. Instead, you can do 1 submission for total rental income and expenses.
The standard quarterly periods in each tax year are:
6th April to 5th July
6th July to 5th October
6th October to 5th January
6th January to 5th April
Business owners and landlords can choose to submit updates that are based on calendar quarters instead of the standard quarterly periods. The calendar quarters are:
1st April to 30th June
1st July to 30th September
1st October to 31st December
1st January to 31st March
The deadlines for submitting quarterly updates are the same regardless of whether the business’s updates are based on standard quarterly periods or on calendar quarters. These deadlines are:
5th August
5th November
5th February
5th May
The quarterly updates will give business owners and landlords a year-to-date calculation of how much tax they owe, based on the information provided in the summary. This will help plan for tax bills.
End of Period statements
At the end of the tax year, you need to finalise your business income. For each income source you’ll need to submit an end of period statement. This is where you:
- Make any accounting adjustments
- Claim any reliefs
- Confirm that the information you’ve sent is correct and complete.
END OF PERIOD STATEMENT and paying your Tax
The End of Period statement will replace the self-assessment tax return. You will need to include all relevant details about personal income and tax reliefs.
The deadline for finalising tax affairs and paying Income Tax isn’t changing. As with the current Self-Assessment system, business owners will need to do both by 31st January of the following tax year. For example, for the tax year 2026-2027, business owners and landlords will have to submit their final declaration and pay their tax bill by midnight on 31st January 2028.
The benefits of MTD ITSA
Submit direct from your software
All the major accounting software providers are working on their MTD ITSA solutions so you will be able to keep all your accounts records in one place and submit direct to HMRC from there.
Tax in real time
You won’t have to wait until 9 months after your year end to know how much tax you pay, so you can plan and budget
Up to date accounts in real time
This is useful for knowing how well your business is doing, if you need to borrow money, take out a mortgage etc.
Using software to automate boring tasks
Invoices can be chased automatically. Bank payments can be reconciled to invoices using artificial intelligence and machine learning. The software handles these repetitive tasks so you’re free to do more of what you love in your business.
Keep less paper
If you choose to use one of the receipt scanning apps e.g. AutoEntry or Dext, you can bin the paperwork once the image has been processed. A Digital copy will be attached to the transaction in your accounts software.
More collaboration
We will be able to work with you through the year to help you plan and ask questions rather than delivering a history lesson once a year.
How can we help?
We will keep you up to date on all things MTD ITSA as we know them.
The reality is the sooner you get into the habit of doing your accounts monthly, the easier it will be for you and us to submit returns quarterly. Everyone will be on the same filing deadlines so we won’t be able to process 3 months of everyone’s paperwork every quarter – it will need to be done monthly.
There is no shying away from it this is going to be more work for all of us so the sooner we get ready, the better. We will be able to file all your returns on your behalf and keep you on the right side of HMRC.
Next steps
GET a separate bank account for your business if you don’t already.
We can work with a bank feed from your personal account but this may cost you more as we will be processing more transactions. It also means we will see all your personal purchases which you may not want us to! We recommend opening a Mettle bank account (see above)
Choose your accounting software
QuickBooks, Xero, Freeagent, Sage there are lots to choose from. We only work with Xero and FreeAgent but the collaboration between FreeAgent and Mettle means FreeAgent is free and this is what we are recommending to all sole traders (contact us for more details). We also offer set up and training if you want to do some of the work yourself. You will have to connect your bank account to the software – again we can talk you through this.
Think about starting early
We will be requiring all clients who will fall under MTD ITSA to move to quarterly bookkeeping from April 2024 and monthly bookkeeping from April 2025 but if you want to get organised earlier get in touch.
The sooner you get in the monthly habit the easier 2026 is going to be for all of us. We work on a monthly fixed fee that will be based on the volume of transactions and submissions.
Don’t panic!
We will be with you every step of the way and are here to help. Book a call to discuss your situation and how we can help.
Working With Us
We are always excited when new clients come on board and we can make a difference to their business.
Are you:
- An existing Limited Company
- Searching for a bookkeeper that does more than simply reconcile your bank
- Looking for professional support for your business journey
Talk to Us - Book a Discovery Call
Are you a Sole Trader, Quickbooks/Sage user or looking for tax advice?
We only do Sole Trader Tax Returns for people working in the Construction Industry. We don't do any other Sole Trader Tax Returns, tax planning or use Quickbooks/Sage - but we can recommend some fabulous people that do!