[Update] – We have updated this article to reflect Rachel Reeves’s recent confirmation that Making tax digital for income tax self-assessment (MTD ITSA) will be mandatory for certain taxpayers from 6 April 2026 in her first Budget as Chancellor in October 2024.

The government launched the Making Tax Digital (MTD) programme on 1st April 2015. The programme aims to usher in a new era of a fully digital tax system, which will allow taxpayers to report their tax liabilities and keep digital records more efficiently.

HM Revenue and Customs (HMRC) states that the move will minimise taxpayer errors and increase the amount of information available to the tax collector.

Following concerted feedback from stakeholders, the government announced on 19th December 2022 that the scheduled introduction of MTD for income tax in April 2023 will be pushed to April 2026. In addition to the deferral of the start date, the government have announced that it will now also be introduced in stages depending on tax payers’ earnings.

We will keep you updated as HMRC update us about the changes; keep reading for what we already know.

 

Changes to the MTD ITSA timeline

  • Under the original proposals the start date for MTD ITSA was going to be April 2018.
  • In July 2017 the start date was deferred to “not before 2020”.
  • In March 2019 the start date was deferred to “not before 2021”.
  • In July 2020 the start date was deferred to April 2023.
  • In September 2021 the start date was deferred to April 2024.
  • In December 2022 that start date was deferred to April 2026 for everyone, and later for some taxpayers.
  • In October 2024 the April 2026 start date was confirmed by the new Labour government as part of its first budget.

 

What is MTD for Income Tax Self-Assessment (MTD for ITSA)

The Making Tax Digital (MTD) programme intends to launch a fully digital tax service in the UK. The programme is expected to allow taxpayers to report their tax payments and liabilities in real-time and easily maintain digital records.

HMRC announced that from 6th April 2026, self-employed business owners (ie. sole traders) and landlords with trading and/or rental income above £50,000 per year (previously to be set at £10,000 per year) will have to comply with MTD for ITSA by keeping digital records and make quarterly updates to HMRC that will provide a summary of their income and expenditure.

From April 2027, this will be reduced to those with a combined trading income and rental income of above £30,000. In addition, after the fourth quarter, they will need to make an End of Period Statement for each income source and a final declaration declaring other sources of taxable income, totalling five submissions per year.

Some general partnerships were previously required to adhere to the rules from April 2025, however this has now been deferred to an as yet unknown future date. Other types of partnerships, such as Limited liability partnerships (LLPs), are expected to join MTD for ITSA at a future date that is also yet to be announced.

Non-UK residents or domiciled individuals will have to follow MTD where they have UK self-employment income and/or UK property income and meet the turnover threshold. UK residents will have to follow MTD if they have foreign property income that meets the threshold (may be combined with other self-employment or UK property turnovers).

Eligible individuals have been able to register for MTD for ITSA since 2018 as part of the HMRC’s pilot scheme. Once we reach the digital start date, you will be required to keep digital records for as long as your business exists.

 

What Are the Requirements for MTD for ITSA

You will be allowed to keep your underlying records (receipts and invoices etc.) in paper format if that best suits you. However, HMRC will now require accompanying digital records for every transaction. Such digital records will need to be kept HMRC compatible cloud-based accounting software.

HMRC aim for taxpayers to record their transactions as close to real-time as possible, but the only timing requirement, so far, is that you should create the quarterly digital records before the deadline.

You will be expected to submit a quarterly update of your income and expenditure to HMRC. You are not required to make accounting or tax adjustments in your quarterly figures, but you can make these adjustments if you prefer to do so. You will be given an allowance of one month from the end of every quarter to submit your quarterly update.

 

The set quarterly periods in each financial year are:

  • 6th April to 5th July (or 1st April to 31st March)
  • 6th July to 5th October (or 1st April to 30th September)
  • 6th October to 5th January (or 1st October to 31st December)
  • 6th January to 5th April (or 1st January to 31st March)

 

The MTD for ITSA Timetable

  • April 2026: Individuals making over £50,000 of combined annual income (not profit) from self-employed businesses or rental properties will need to comply with MTD for ITSA.
  • April 2027: This changes to individuals making over £30,000 of combined annual income (not profit) from self-employed businesses or rental properties needing to comply with MTD for ITSA.
  • “By the end of the current Parliament”: This changes to individuals making over £20,000 of combined annual income (not profit) from self-employed businesses or rental properties needing to comply with MTD for ITSA.

HMRC have stated that MTD for Corporation Tax will not be mandated before April 2026 but there have been no updates yet.

HMRC have also stated that MTD for ITSA will eventually apply to partnership income but we have no fixed date for that at this stage either.

 

HMRC Compatible Cloud-Based Accounting Software

If you’re wondering what solutions are available already and compatible with HMRC, examples include:

They are all similarly priced and offer a similar service.They all set up a direct bank feed to your company bank account, and you can categorise the transactions once they are fed into the software. Another great feature is that you can create quotes and invoice your clients from the software.

We find Xero to be the best of them, and we will partner with them to access their reduced packages and rates available to Xero Partners. This change will minimise the financial burden for our clients.

 

Exemptions for MTD for Income Tax Self-Assessment

HMRC offers MTDA for ITSA exemptions in the following circumstances:

 

1. Income threshold

If your income from all businesses (trade and property) do not exceed the revenues above then you will not need to comply with the new system.

 

2. Digital exclusions

HMRC acknowledges that there is a minority of people who cannot use digital tools. This minority, known as the ‘digitally excluded’, are defined as individuals who cannot use accounting software or apps for the following reasons:

  • Religion
  • Age
  • Remote location
  • Disability

HMRC has accepted to legislate for an exemption for these digitally excluded people. Individuals or businesses seeking digital exclusion need to apply to HMRC for exemption. HMRC has 28 days to respond to the application.

 

3. Other exemptions

HMRC also offers exclusions to the following:

  • Non-resident companies
  • Trustees, administrators and executors
  • Foreign businesses owned by non-UK domiciled individuals

 

Impact on Self-Assessment Tax Returns

Self-assessment tax returns have the following impact:

Fewer Errors

Using accounting software means that you can catch errors as they happen. It increases the accuracy of your accounts and saves you the time and labour of going through all your paper receipts by hand.

 

Real-Time View of Your Tax Liabilities

Your digital tax account allows you to view your tax liabilities whenever, so you don’t have to wait until the end of the year to discover how much you owe.

 

An Easier and More Convenient Process

The real-time nature of MTD for ITSA eliminates annual tax returns meaning that you don’t have to handle 12 months’ worth of data reporting at the end of the financial year.

All of your financial information is stored in a single system, so it’s easy to access.

 

What Are The Penalties Of Failing Making Tax Digital Filings?

HMRC has introduced a point system for penalising individuals or businesses that fail to file MTD for Income Tax. Each late report will be given points. As soon as the points pass a threshold, a penalty will be charged for all missed deadlines.

 

Preparing for the MTD for Income Tax Changes

Following the introduction of MTD, you will need to keep digital records on HMRC compatible cloud-based accounting software.

At DS Burge & Co, we’re here to help with all aspects of Making Tax Digital. We offer a complete range of accountancy services to help companies and private individuals get on top of their finances and help handle the stress of dealing with HMRC on your behalf.

Get in touch today to learn more about our self assessment tax return service or get personal tax advice on your individual situation.