Making Tax Digital for Income Tax Software Requirements

Introduction to Making Tax Digital for Income Tax

Making Tax Digital for Income Tax Self Assessment MTD for ITSA marks a significant shift in how self-employed individuals and landlords report their income and expenses to HMRC. This initiative, designed to modernise the tax system, aims to make tax administration more efficient, reduce errors, and provide taxpayers with a clearer, more real-time view of their tax position. Starting from 6 April 2026, MTD for ITSA will fundamentally change the reporting obligations for a substantial portion of the UK's self-employed population and property owners.

The phased rollout begins with those earning over £50,000 from their businesses or property. These individuals will no longer submit an annual self-assessment tax return in the traditional way but will instead be required to keep digital records and send quarterly summaries of their income and expenses to HMRC via MTD-compatible software. This guide will delve into the specific software requirements, outlining what taxpayers need to know to ensure compliance and avoid potential penalties. Understanding these requirements is paramount for a smooth transition to the new digital tax landscape.

HMRC anticipates between 100,000 and 200,000 early adopters will be impacted by the initial April 2026 rollout. While the transition may seem daunting, a variety of software solutions are available, including free options and bridging software, to help businesses adapt. This comprehensive resource will provide a clear overview of the obligations and practical steps required to meet MTD for ITSA software standards.

What is Making Tax Digital for Income Tax?

Making Tax Digital MTD is a government initiative to make it easier for individuals and businesses to get their tax right and keep on top of their affairs. It is part of HMRC's wider plan to become one of the most digitally advanced tax administrations in the world. MTD for Income Tax Self Assessment MTD for ITSA is the next phase of this transformation, following the successful implementation of MTD for VAT.

The Core Principle of MTD for ITSA

The fundamental principle of MTD for ITSA is to move away from annual paper-based tax returns towards a system of digital record keeping and more frequent, digital updates. Instead of a single annual submission, taxpayers will be required to:

Keep digital records of all business income and expenses. This means no more shoeboxes full of receipts.
Send quarterly summaries of this data to HMRC using MTD-compatible software. These are not full tax returns but snapshots of income and expenditure.
Submit an End of Period Statement EOPS to finalise their business income and expenses for the tax year.
Make a Final Declaration to confirm all other income sources and claim any reliefs or allowances, replacing the traditional Self Assessment tax return.

Who is Affected and When? Phased Rollout

MTD for ITSA is being introduced in stages, based on the level of qualifying income. It is crucial to understand when these changes will apply to you or your business.

Start date	Threshold	Who is affected
From 6 April 2026	Income over £50,000	Self-employed individuals and landlords
From 6 April 2027	Income over £30,000	Self-employed individuals and landlords
From 6 April 2028	Income over £20,000	Self-employed individuals and landlords (planned)
Future	All other businesses	Partnerships and those below £20,000 (timeline TBC)

The income threshold refers to the total gross income from all businesses and/or property that an individual operates. This is not per business. For example, if you have two self-employed trades, one earning £30,000 and another £25,000, your total income is £55,000, meaning you would be mandated to join MTD for ITSA from April 2026.

The Benefits HMRC Promises

HMRC highlights several benefits of MTD for ITSA for taxpayers:

Reduced Errors: Digital record keeping and automated calculations are expected to reduce common mistakes.
Better Financial Planning: Quarterly updates provide a more up-to-date picture of tax liability, helping individuals budget for their tax payments.
Easier Record Keeping: Compatible software can automate many aspects of record keeping, saving time compared to manual methods.
Improved Compliance: Real-time data allows HMRC to spot and address issues more quickly, offering support where needed.

While the transition requires adaptation, the long-term goal is a more streamlined and transparent tax system for everyone involved.

Essential Software Requirements for MTD for Income Tax

The cornerstone of MTD for ITSA is the mandatory use of "functionally compatible software." This is not merely a suggestion; it is a legal requirement for all businesses and landlords mandated to join MTD. Understanding what this software must be capable of is critical for compliance.

What is "Compatible Software"?

HMRC defines MTD-compatible software as a program or set of programs that can:

Keep digital records: Store all required business income and expenses digitally.
Send quarterly updates: Directly submit summary data from these digital records to HMRC via an API Application Programming Interface.
Receive information from HMRC: Such as MTD notices or a copy of your tax calculations.
Submit the End of Period Statement EOPS: Finalise business income and expenses for the tax year.
Submit the Final Declaration: Replace the traditional Self Assessment tax return.

It is important to note that "compatible software" does not necessarily mean a single piece of software. A combination of software tools, often referred to as "bridging software" with spreadsheets, can also qualify, provided they collectively meet all the requirements.

Digital Record Keeping Mandate

The core of MTD for ITSA is the requirement to keep digital records. This means that all relevant business and/or property income and expense transactions must be recorded and stored digitally, not just summarised. This is a continuous requirement, not just at the point of submission.

For each business or property, the digital records must include:

Date of transaction
Amount of transaction
Type of transaction (e.g., income, expense category)
VAT details (if VAT registered)
Business name and description
Unique transaction reference
Total income for each period
Total expenses for each period, broken down by category

While HMRC does not dictate the format of these digital records, they must be easily accessible by the MTD-compatible software to generate the quarterly updates. This often means using an accounting software package that automatically categorises transactions from bank feeds or through manual entry.

Worked Example: Recording a Sale Digitally. A self-employed graphic designer sells a logo design service on 15 May 2026 for £500. Digital Record Entry: Date: 2026-05-15. Amount: £500.00. Type: Income, Sales Revenue. Description: Logo design for Client A. Reference: INV-2026-001. This record is stored in the MTD software, ready for the quarterly update.

Quarterly Updates Submission

One of the most significant changes introduced by MTD for ITSA is the requirement to submit quarterly summaries of income and expenses. These submissions are not full tax returns. Instead, they provide HMRC with a regular snapshot of your financial activity throughout the tax year.

For each business or property, you will need to send a summary of:

Total income.
Total expenses, broken down by category (e.g., travel, utilities, materials).

These updates must be sent to HMRC by the specified deadlines, which are typically one month after the end of each tax quarter.

Quarterly Update Deadlines for a Standard Tax Year (6 April to 5 April)

Accounting Period	Submission Deadline
6 April to 5 July	5 August
6 July to 5 October	5 November
6 October to 5 January	5 February
6 January to 5 April	5 May

Worked Example: Submitting a Quarterly Summary. A freelance consultant's first MTD quarter runs from 6 April 2026 to 5 July 2026. During this period, their digital records show: Total Income: £12,000. Total Expenses: £3,500 (e.g., £500 travel, £1,000 software, £2,000 office rent). By 5 August 2026, their MTD-compatible software will automatically extract these totals and submit them to HMRC. The software will also provide an estimated tax position based on these figures.

End of Period Statement EOPS

After the four quarterly updates for a tax year are submitted, taxpayers must then submit an End of Period Statement EOPS for each business or property. The EOPS allows for any accounting adjustments to be made that were not included in the quarterly updates. These adjustments might include:

Adjustments for accruals and prepayments.
Capital allowances.
Stock adjustments.
Private use adjustments for expenses.

The deadline for submitting the EOPS is the same as the deadline for the traditional Self Assessment tax return, which is 31 January following the end of the tax year (e.g., 31 January 2028 for the 2026/27 tax year). This statement confirms the final taxable profit or loss from each business or property for the year.

Final Declaration

The Final Declaration replaces the final pages of the traditional Self Assessment tax return. After submitting all EOPSs for their businesses and properties, individuals will then make a Final Declaration to HMRC. This declaration will bring together all sources of income, including:

Profits from self-employment and/or property income (as finalised by the EOPSs).
Employment income.
Bank interest.
Dividends.
Pension income.

It is also where any reliefs, allowances, or adjustments that apply across all income sources are claimed. The Final Declaration generates the final tax calculation for the year and confirms the tax liability. The deadline for the Final Declaration is also 31 January following the end of the tax year.

Bridging Software Explained

For those who prefer to continue using spreadsheets for their digital record keeping, HMRC allows for the use of "bridging software." Bridging software is a digital tool that connects a spreadsheet containing your income and expense data directly to HMRC's MTD system. It acts as an intermediary, taking the summary data from your spreadsheet and sending it to HMRC in the required digital format.

Key points about bridging software:

Digital Links: Your spreadsheet must have digital links to the bridging software. This means data should be transferred electronically, without manual copy-pasting, to maintain the digital audit trail.
Record Keeping: You are still responsible for ensuring your spreadsheet contains all the mandatory digital records detailed above. The bridging software typically only handles the submission.
Functionality: Bridging software must be able to submit quarterly updates, EOPS, and the Final Declaration.

Bridging software can be a good interim solution for those comfortable with spreadsheets but it may lack the automation and advanced features of dedicated accounting software, such as bank feeds, automatic categorisation, and real-time tax estimates.

Free Software Options

HMRC recognises that the transition to MTD for ITSA may pose a financial burden for some small businesses and landlords. As such, there are free MTD-compatible software options available. These typically offer basic functionality sufficient to meet the minimum MTD requirements, such as digital record keeping and submitting quarterly updates.

When considering free software, it is important to:

Verify Compatibility: Ensure the software is listed as MTD-compatible on HMRC's website.
Check Features: While free, ensure it meets all your specific business needs beyond just MTD compliance. Some free versions might have limitations on transactions, users, or advanced reporting.
Support: Understand what level of customer support is offered with free versions, as this can vary significantly.

For many, a free option may be a good starting point, particularly for those with straightforward tax affairs or those just over the income threshold. However, as businesses grow or tax situations become more complex, upgrading to a paid solution with more comprehensive features and support may become necessary.

Choosing the Right MTD for Income Tax Software

Selecting the appropriate MTD-compatible software is a critical decision that can significantly impact your compliance, efficiency, and overall financial management. With a growing number of software providers on the market, it is essential to consider various factors beyond just basic MTD compliance.

Key Features to Look For

When evaluating MTD for ITSA software, consider the following features to ensure it meets both your compliance obligations and business needs:

Automated Bank Feeds: This feature automatically imports transactions from your business bank account, significantly reducing manual data entry and potential errors.
Expense Categorisation: Intelligent software can learn to categorise your expenses, making record keeping faster and ensuring accuracy for quarterly updates.
Receipt Scanning/Storage: The ability to capture and store digital images of receipts directly linked to transactions helps maintain a comprehensive audit trail.
Real-Time Tax Estimates: Software that provides an ongoing estimate of your tax liability can help you budget and avoid year-end surprises.
Invoicing and Billing: Many accounting software packages include features for creating and sending invoices, managing debtors, and tracking payments.
Reporting: Beyond MTD submissions, look for software that offers useful financial reports, such as profit and loss statements, balance sheets, and cash flow forecasts.
Multi-Business Support: If you have multiple self-employment trades or properties, ensure the software can handle separate records and submissions for each.

Integration with Other Systems

Consider how the MTD software integrates with other tools you might use in your business. This could include:

CRM Systems: If you manage customer relationships digitally.
E-commerce Platforms: For online sellers, direct integration can automate sales data entry.
Payroll Software: If you employ staff.
Payment Gateways: For seamless reconciliation of payments received.

Seamless integration reduces manual effort, minimises errors, and ensures a consistent flow of financial data across your business operations.

Cloud-Based vs. Desktop Solutions

The vast majority of MTD-compatible software solutions are cloud-based.

Cloud-Based (SaaS): Accessible from anywhere with an internet connection, often via a web browser or mobile app. Offers automatic updates, backups, and collaboration features for accountants. Examples include AccountsOS, Xero, QuickBooks, FreeAgent.
Desktop Software: Installed directly on your computer. While less common for MTD, some providers may offer desktop solutions with MTD bridging capabilities. These require manual updates and local backups.

Cloud-based solutions are generally recommended for MTD for ITSA due to their flexibility, real-time data access, and seamless integration with HMRC's digital services.

Data Security and Compliance

Your financial data is sensitive. Ensure that any software you choose prioritises data security and privacy. Look for:

Encryption: Data should be encrypted both in transit and at rest.
Regular Backups: Cloud providers should have robust backup and disaster recovery protocols.
GDPR Compliance: The software provider should adhere to General Data Protection Regulation GDPR standards.
HMRC Recognition: Always check HMRC's official list of MTD-compatible software to ensure the provider is recognised.

Support and Training

Especially during the transition to MTD for ITSA, reliable support can be invaluable. Consider:

Customer Service: Availability of phone, email, or chat support.
Knowledge Base/Tutorials: Extensive online resources, guides, and video tutorials for self-help.
Accountant Access: The ability to easily grant your accountant access to your records for review and submission.

Choosing the right software is a long-term investment in your business's financial health and compliance. Take the time to research, try out demos, and compare options before making a decision.

Getting Started with MTD for Income Tax: A Step-by-Step Guide

Navigating the changes introduced by MTD for ITSA can seem complex, but by following a structured approach, you can ensure a smooth transition. Here is a step-by-step guide to help you prepare and comply with the new requirements.

Step 1: Check Your Eligibility

The first and most crucial step is to determine if you are mandated to join MTD for ITSA.

Calculate Your Gross Income: Add up your total gross income from all self-employment businesses and UK property you own. This is your income before any expenses are deducted.
Check the Threshold: If your income is over £50,000, you are mandated from 6 April 2026. If your income is over £30,000 but not over £50,000, you are mandated from 6 April 2027. If your income is over £20,000 but not over £30,000, you are currently planned to be mandated from 6 April 2028.

If you are below the current thresholds, you can still sign up voluntarily if you wish to benefit from digital record keeping.

Step 2: Choose Your Software

Once you confirm your eligibility, you need to select MTD-compatible software.

Research Options: Explore different accounting software providers and bridging software solutions. AccountsOS is fully MTD-compatible.
Check HMRC's List: Verify that your chosen software is on HMRC's official list of MTD-compatible software for Income Tax.
Consider Features: Balance compliance needs with additional features that can benefit your business, as discussed in the previous section.
Seek Advice: If unsure, consult with an accountant who is familiar with MTD for ITSA.

You must officially sign up for MTD for ITSA with HMRC.

HMRC Online Service: You or your agent will need to use HMRC's online service to sign up for MTD for ITSA. You cannot sign up until your software is ready.
Government Gateway ID: You will need your Government Gateway user ID and password.
UTR and NI Number: Have your Unique Taxpayer Reference UTR and National Insurance number ready.

Once signed up, HMRC will confirm your enrolment and your MTD obligations will officially begin from your next accounting period start date.

Step 4: Keep Digital Records

From your MTD start date, you must begin keeping digital records for all relevant income and expenses.

Enter Data: Use your chosen MTD software to record every business transaction as it happens, or as frequently as possible.
Link Bank Accounts: If your software supports it, connect your business bank accounts for automated transaction imports.
Categorise: Ensure all income and expenses are correctly categorised within the software.
Retain Records: Digitally store supporting documents, such as invoices and receipts.

Step 5: Submit Quarterly Updates

At the end of each tax quarter, your software will generate a summary of your income and expenses.

Review Data: Before submission, review the summary generated by your software to ensure accuracy.
Submit via Software: Use your MTD-compatible software to submit the quarterly update directly to HMRC by the deadline. Your software should guide you through this process.
Repeat: You will do this four times per tax year.

Step 6: Submit Your EOPS and Final Declaration

After the final quarterly update for the tax year, you will complete your annual tax obligations.

End of Period Statement EOPS: Use your software to make any final accounting adjustments for each business or property and submit the EOPS to HMRC by 31 January following the tax year.
Final Declaration: Consolidate all your income sources, claim any remaining allowances, and submit your Final Declaration via your software to HMRC by the same 31 January deadline. This completes your tax return for the year.

By following these steps, you can confidently navigate the requirements of MTD for ITSA and maintain compliance with HMRC's new digital tax system.

Specific Scenarios and Exemptions for MTD for Income Tax

While MTD for ITSA aims to encompass a broad range of self-employed individuals and landlords, there are specific scenarios and potential exemptions that taxpayers need to be aware of. Understanding these can clarify your obligations or determine if you are excluded from the mandate.

Landlords with Property Income

Landlords with rental income are explicitly included in MTD for ITSA if their gross property income, combined with any self-employment income, exceeds the relevant threshold.

Combined Income: It is the total gross income from all UK property businesses and any self-employment businesses that counts towards the threshold, not just property income alone.
Digital Records: Landlords must keep digital records for all property income and expenses, just like self-employed individuals. This includes rent received, mortgage interest, repairs, agent fees, etc.
Quarterly Updates: Quarterly summaries of property income and expenses must be submitted via MTD-compatible software.
Overseas Property: Income from overseas property is also included in the MTD for ITSA scope and must be digitally recorded and reported.

Self-Employed Individuals with Multiple Businesses

If you operate multiple self-employment businesses, the MTD for ITSA rules apply to your combined gross income from all these ventures.

Separate Records: You must keep separate digital records for each individual business.
Separate EOPS: An End of Period Statement EOPS must be submitted for each business.
Consolidated Quarterly Updates: While you keep separate records, your MTD software will typically allow you to consolidate the quarterly updates into a single submission to HMRC for all your businesses if they share the same accounting period. Alternatively, some software allows for separate submissions. Always check your software's capabilities.

Partnerships

At the initial stages of MTD for ITSA, general partnerships are not yet included in the mandate. The current rollout focuses on individual self-employed taxpayers and landlords.

Future Plans: HMRC has indicated that MTD for general partnerships will be introduced at a later date, but no specific timeline or income threshold has been set yet.
Individual Partners: Individual partners may still be mandated for MTD for ITSA if they also have separate self-employment income or property income that meets the threshold.

Exemptions from MTD for Income Tax

While MTD for ITSA is becoming mandatory for many, certain individuals and businesses may be exempt.

Common Exemption Criteria

Exemption Type	Criteria
Income Below Threshold	Gross income from self-employment and/or property is below the current MTD threshold (£50,000 from April 2026, £30,000 from April 2027, etc.).
Digital Exclusion	Individuals who cannot reasonably use digital tools to keep business records or send updates because of age, disability, location, or other reasons. This typically requires HMRC approval.
Religious Objection	Individuals whose religious beliefs prevent them from using computers or the internet. This also requires HMRC approval.
Insolvency	Individuals who are subject to insolvency procedures.
Limited Companies	Limited companies currently fall under MTD for Corporation Tax, not MTD for ITSA. Their obligations are separate.

If you believe you qualify for an exemption, you must contact HMRC to apply. Do not assume you are exempt without official confirmation, as this could lead to penalties for non-compliance. HMRC will assess each case individually.

Common Challenges and How to Overcome Them

The transition to MTD for ITSA, like any significant change, may present challenges for some taxpayers. Being aware of these potential hurdles and planning for them can help ensure a smoother adoption process.

Transitioning from Manual Records

Many self-employed individuals and landlords are accustomed to manual record keeping, such as paper ledgers or simple spreadsheets that do not meet MTD's digital linking requirements.

Challenge: Difficulty adapting to new software, fear of technology, and the time investment required to learn new systems.
Solution: Start early. Do not wait until the last minute. Take advantage of free trials and online tutorials offered by software providers. Consider bridging software if you are highly proficient with spreadsheets and prefer that method. Many software options, like AccountsOS, are designed to be intuitive and user-friendly.

Understanding New Deadlines

Moving from one annual tax return to five submissions (four quarterly updates and one EOPS/Final Declaration) can be confusing and lead to missed deadlines.

Challenge: Keeping track of multiple submission deadlines throughout the year.
Solution: Use MTD-compatible software that provides automated reminders for upcoming deadlines. Create a calendar or set up personal reminders. If working with an accountant, ensure they are managing these deadlines for you.

Dealing with Errors in Digital Records

Mistakes can happen, especially when first getting used to new systems. Errors in digital records can lead to incorrect submissions and potential penalties.

Challenge: Ensuring accuracy of data entry and making corrections if errors are discovered after submission.
Solution: Regularly reconcile your bank statements with your software records. Review each quarterly summary carefully before submission. MTD software typically allows for corrections to be made in subsequent submissions, but it is best to get it right the first time. Seek professional advice if you are unsure about complex transactions.

Agent Collaboration

If you use an accountant or tax agent, their role in MTD for ITSA will change, and effective collaboration is essential.

Challenge: Ensuring your agent has access to your digital records and can make submissions on your behalf, or advise you correctly.
Solution: Discuss MTD with your accountant well in advance. Choose software that allows for easy collaboration and agent access. Your agent can sign up for MTD for ITSA on your behalf and handle submissions, but you remain ultimately responsible for the accuracy of your records.

Proactive planning, leveraging the right software tools, and seeking professional advice when needed are key strategies to overcome these challenges and successfully adapt to MTD for ITSA.

How AccountsOS Supports Your MTD for Income Tax Compliance

AccountsOS is designed to simplify MTD for Income Tax Self Assessment MTD for ITSA compliance, offering a comprehensive and user-friendly platform that meets all HMRC's digital record-keeping and submission requirements. Our goal is to make the transition seamless and help you stay on top of your tax obligations with confidence.

Seamless Digital Record Keeping

AccountsOS automates much of the digital record-keeping process, ensuring you meet HMRC's requirements without extensive manual effort.

Automated Bank Feeds: Connect your business bank accounts to AccountsOS for automatic import of all transactions. This eliminates manual data entry and ensures all your income and expenses are captured digitally.
Smart Categorisation: Our intelligent system learns your spending patterns and suggests appropriate categories for your transactions, ensuring accurate record keeping for MTD submissions. You can also easily customise categories.
Receipt Capture: Easily upload or snap photos of your receipts and link them directly to transactions, creating a complete digital audit trail.

Automated Quarterly Updates

AccountsOS streamlines the process of submitting your quarterly income and expense summaries to HMRC.

Automatic Summary Generation: AccountsOS automatically compiles the required income and expense data for each tax quarter directly from your digital records.
Direct HMRC Submission: With a few clicks, you can review your quarterly summary and submit it directly to HMRC via our MTD-compatible API integration.
Deadline Reminders: AccountsOS sends timely notifications for upcoming quarterly update deadlines, helping you avoid late submissions and potential penalties.

EOPS and Final Declaration Support

AccountsOS guides you through the year-end processes for MTD for ITSA, ensuring your End of Period Statement and Final Declaration are accurate and submitted on time.

Accounting Adjustments: Easily make year-end adjustments for capital allowances, accruals, prepayments, and private use within the software.
Consolidated Reporting: AccountsOS helps you consolidate all your income sources and deductions, preparing the figures needed for your Final Declaration.
Guided Workflow: Our intuitive interface walks you through each step of submitting your EOPS and Final Declaration, ensuring all necessary information is included.

Real-Time Tax Position

Gain clarity on your tax liability throughout the year, not just at year-end.

Estimated Tax Liability: See an ongoing estimate of your income tax and National Insurance contributions based on your real-time digital records. This helps you budget and plan for payments.
Performance Insights: Understand your business's financial health with clear dashboards and reports, enabling better decision-making.

Integration with HMRC

AccountsOS meets HMRC's MTD VAT standards and connects to HMRC's MTD VAT API.

HMRC Recognised for VAT: AccountsOS is on HMRC's list of MTD VAT software.
Secure Connection: We use secure, government-approved APIs to ensure your data is transmitted safely and correctly to HMRC.
Agent Access: Easily grant access to your accountant, allowing them to review your records, make adjustments, and submit on your behalf, ensuring seamless collaboration.

With AccountsOS, you gain a powerful partner in navigating MTD for ITSA, allowing you to focus more on running your business and less on tax compliance complexities.

The Future of MTD for Income Tax

Making Tax Digital for Income Tax Self Assessment MTD for ITSA is not a static initiative but a foundational step towards a fully digital tax system. HMRC has outlined a phased approach, and understanding the future trajectory of MTD can help taxpayers and businesses plan strategically.

Expanding Thresholds and Scope

The current rollout begins with higher income thresholds, but the plan is to eventually include a much larger population of taxpayers.

Lowering Thresholds: As outlined earlier, the income threshold will drop to £30,000 from April 2027, and is planned to further reduce to £20,000 from April 2028. This means a significant number of additional self-employed individuals and landlords will become mandated over the next few years.
Partnerships: While general partnerships are currently exempt, HMRC intends to bring them into MTD for ITSA at a future date. The specific timeline and requirements for partnerships are yet to be announced, but it is prudent for partners to start considering how they will adapt.
Other Income Sources: While the initial focus is on self-employment and property income, the broader vision of MTD could eventually extend to other income streams currently reported via Self Assessment.

This gradual expansion underscores the importance of adopting MTD-compatible practices now, even if you are not immediately mandated, to prepare for future requirements.

Potential Future Changes

Beyond the planned expansion, MTD for ITSA may see further developments as the system matures.

Pre-population of Data: HMRC's long-term vision includes the pre-population of some tax data, such as employment income or bank interest, directly into compatible software. This would further reduce manual entry and potential errors.
Real-Time Tax Payments: While not currently part of MTD for ITSA, the shift to more frequent reporting could pave the way for more frequent tax payments, aligning payments more closely with real-time income. HMRC has discussed this possibility in the past.
Enhanced Digital Interaction: The digital tax accounts will likely become more sophisticated, offering taxpayers a more comprehensive and interactive view of their tax affairs, including communications from HMRC directly within the software.

Remaining informed about these potential developments is crucial. Choosing flexible, cloud-based software that regularly updates to meet new HMRC requirements, such as AccountsOS, will be key to future-proofing your tax compliance. The overarching aim is a more modern, efficient, and transparent tax system for everyone.

Frequently asked questions

When does MTD for Income Tax start for me?

MTD for Income Tax starts from 6 April 2026 for individuals with gross income from self-employment and/or property over £50,000. It expands to those over £30,000 from 6 April 2027, and is planned for those over £20,000 from 6 April 2028.

What if I already use accounting software?

If your existing software is MTD-compatible for Income Tax, you can continue using it. You must ensure it can keep digital records, submit quarterly updates, and handle the EOPS and Final Declaration directly to HMRC via an API. Check HMRC's list of compatible software.

Can I use spreadsheets for MTD for Income Tax?

Yes, you can use spreadsheets for digital record keeping, but you must combine them with 'bridging software'. This software provides the digital link to HMRC's systems, allowing you to submit your quarterly summaries, EOPS, and Final Declaration in the required digital format.

What are the penalties for non-compliance with MTD for Income Tax?

HMRC can issue penalties for failing to keep digital records, not submitting quarterly updates on time, or submitting inaccurate information. Penalties are designed to encourage compliance and can escalate based on the severity and frequency of non-compliance.

Do I still need an accountant with MTD for Income Tax?

While MTD aims to simplify record keeping, an accountant can still be invaluable. They can help you choose the right software, ensure your records are accurate, make complex accounting adjustments, and handle submissions on your behalf, providing expert advice and saving you time.

What if my income drops below the MTD for Income Tax threshold?

If your income drops below the mandatory threshold in a tax year, you may be able to opt out of MTD for ITSA for subsequent tax years. However, you must inform HMRC, and it is often beneficial to continue using digital records voluntarily for better financial management.

Is MTD for Income Tax the same as MTD for VAT?

No, while both are part of the Making Tax Digital initiative, they are separate. MTD for VAT requires VAT-registered businesses to keep digital records for VAT and submit VAT returns using MTD-compatible software. MTD for Income Tax applies to self-employed individuals and landlords for their income tax obligations.

You sign up for MTD for Income Tax through HMRC's online service once your MTD-compatible software is ready. You will need your Government Gateway user ID, password, Unique Taxpayer Reference UTR, and National Insurance number. Your accountant can also sign you up.