Making Tax Digital for income tax self-assessment (MTD for ITSA) was originally set to roll out in 2018, but the road to personal tax digitalisation has been relatively rocky to date. While the Government successfully introduced MTD for VAT for returns starting on or after 1 April 2022, MTD for ITSA has been postponed five times in as many years.
The latest delay means that self-assessment customers won’t need to comply until 6 April 2026. These new rules won’t affect all taxpayers at once, either; instead, a more phased approach will aim to ensure the smoothest transition possible.
What does MTD for ITSA mean?
When MTD for ITSA arrives in April 2026, only self-employed sole traders and landlords with an income over £50,000 will be mandated to follow the rules. Those earning £30,000 and above will need to keep digital records from April 2027 onwards.
The Government has launched a review into accommodating the needs of smaller businesses and is yet to announce a date for extending the legislation to partnerships.
What you need to do for MTD for ITSA
Keep digital records
Once the Government introduces MTD for ITSA, self-assessment customers must create and store digital records of all business income and expenses using MTD-compatible software.
You can find a full list of compatible software on the HMRC website, and you still need to enter your Government Gateway user ID and password into your software and follow the instructions to authorise it.
Send quarterly updates to HMRC
Once set up, your software will automatically add up your digital records every three months, creating totals for each income and expense category. These quarterly updates will give you an estimate of your tax bill.
You do not need to adjust these updates if you don’t want to – but doing so may make the estimate more accurate. Your software provider will also prompt you to send updates for each income source to HMRC every quarter. You will need to do this within a month of each standard quarterly period ending or else face a penalty.
Self-assessment customers with more than one business will need to meet the requirements for each individual business – that means separate records and separate submissions for each income source.
Finalise your business income
Instead of completing a self-assessment tax return at the end of each year, you will need to finalise your business income with a final end-of-period statement (EOPS).
If you need to make tax or accounting adjustments to your EOPS, you should do so before your final submission. For the time being, it looks like the current deadlines for tax payments and payments on account will stay the same, so you’ll still need to keep those dates in your diary.
According to HMRC, your software provider will help you meet these requirements, prompting you to send updates in time and advising you on how to adjust to this new way of working. You can authorise an agent to act on your behalf if you prefer. That means that if your accountant is already handling your self-assessment returns under the current rules, you won’t need to re-authorise them for MTD for ITSA.
While making the transition to MTD for ITSA is a significant change, there are many advantages to keeping digital records beyond simply helping you stay compliant.
While MTD for ITSA rules won’t come into effect for a few years, going digital sooner rather than later will help you prepare well ahead of 2026.
Get in touch to find out how we can support your business with MTD for ITSA
