Making Tax Digital for Income Tax (MTD for ITSA) is set to change the way self-employed individuals and landlords report their income to HMRC. To help you get to grips with what this means for you, we’ve answered some of the most common questions about MTD for Income Tax below.
1. What is MTD for Income Tax?
Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is a government initiative aimed at modernising the tax system. It requires affected taxpayers to keep digital records and submit updates to HMRC using compatible software. The goal is to reduce errors, improve efficiency, and provide a clearer picture of tax liabilities throughout the year.
2. When will MTD for ITSA start?
MTD for ITSA will be rolled out in stages:
- From April 2026: It will apply to self-employed individuals and landlords with an annual income over £50,000.
- From April 2027: The threshold will reduce to £30,000, bringing more taxpayers into the system.
Further phases may be introduced later, but currently, those earning below £30,000 are not required to comply.
3. Who does MTD for ITSA apply to?
MTD for ITSA will initially apply to:
- Self-employed individuals and landlords with an annual gross income of over £50,000 from 6 April 2026.
- Those earning over £30,000 will be required to comply from 6 April 2027.
If you fall below these thresholds, you can still choose to opt in voluntarily, but it’s not mandatory.
4. What are the key requirements of MTD for ITSA?
If you’re required to follow MTD for ITSA, you will need to:
- Keep digital records of your business income and expenses.
- Submit quarterly updates to HMRC.
- Complete an End of Period Statement (EOPS) at the end of the tax year to finalise your accounts.
- Submit a Final Declaration, confirming that all tax liabilities are correct and replacing the traditional Self Assessment return.
5. When do I need to start submitting updates under MTD?
Quarterly updates will need to be submitted every three months, starting from your first tax year under MTD. The submission deadlines are expected to be:
- 6 August (covering April – June)
- 6 November (covering July – September)
- 6 February (covering October – December)
- 6 May (covering January – March)
These updates provide HMRC with a snapshot of your tax position throughout the year.
6. What software do I need to use for MTD?
You must use HMRC-approved accounting software that is compatible with MTD for ITSA such as FreeAgent but there are various options available.
7. What happens if I don’t comply with MTD for ITSA?
HMRC will introduce a penalty system for non-compliance, which is likely to include fines for late or missing submissions. If you fail to submit your quarterly updates, EOPS, or Final Declaration on time, you may face financial penalties. It’s best to prepare early to avoid any issues.
8. Can I get an exemption from MTD?
You may be eligible for an exemption if:
- You cannot use digital tools due to age, disability, or location (e.g., lack of internet access).
- Your religious beliefs prevent the use of digital technology.
To apply for an exemption, you will need to contact HMRC and provide evidence to support your claim.
9. What should I do now to prepare for MTD?
To ensure you’re ready for MTD for ITSA, consider the following steps:
- Check your income levels to see when you will be required to comply.
- Research and choose MTD-compatible software.
- Start keeping digital records now to get familiar with the process.
- Seek professional advice from an accountant to help with the transition.
10. How will MTD benefit me?
While MTD requires some changes, it also brings several benefits:
- Less paperwork and manual tax calculations.
- A clearer view of your tax liability throughout the year.
- Reduced errors and improved accuracy in tax reporting.
- More efficient record-keeping and easier tax submissions.
11. Where can I get more help with MTD for ITSA?
If you’re unsure about what MTD means for you, PaperRocket Accounting is here to help. We can guide you through the process and ensure you stay compliant. Get in touch with us today to discuss how MTD for ITSA will affect your business.
PaperRocket are a multi award winning Chartered accounting practice, and Accredited FreeAgent Practitioners.
We specialise in providing friendly, non-accounting jargon, services for contractors, freelancers, sole traders, and landlords across the UK.
Our fixed fee monthly accounting packages all include a FreeAgent subscription as standard and unlimited support from your allocated accountant.
To find out how we can help you please get in touch now.
