Will Making Tax Digital Replace Self Assessment for Landlords and Sole Traders in 2026?

Key dates at a glance

• Mandatory Start Date: 6 April 2026. For qualifying income over £50,000.
• Future Threshold: 6 April 2027. For qualifying income over £30,000.
• Reporting Frequency: Quarterly. Digital updates to HMRC.

Understanding Making Tax Digital for Income Tax Self Assessment (MTD ITSA)

Making Tax Digital (MTD) is a government initiative by HMRC to modernise the UK tax system, making it more efficient and reducing errors. While MTD for VAT has been mandatory for most VAT-registered businesses since 2019, MTD for Income Tax Self Assessment (ITSA) represents the next major phase. From 6 April 2026, it will become compulsory for self-employed individuals and landlords with qualifying business or property income exceeding £50,000. This change signifies a fundamental shift from the current annual Self Assessment process to a system of digital record keeping and quarterly reporting.

The core question for many is whether MTD ITSA will entirely replace the familiar Self Assessment tax return. The answer is nuanced: it will not abolish Self Assessment, but rather transform how it operates for those within its scope. Instead of a single annual submission, taxpayers will provide regular digital updates throughout the tax year, culminating in an End of Period Statement and a Final Declaration. This guide will delve into the specifics of MTD ITSA, explaining who is affected, what changes are coming, and how you can prepare for these significant developments.

What is Making Tax Digital for Income Tax Self Assessment (MTD ITSA)?

MTD ITSA is HMRC's plan to make tax administration more effective, easier for taxpayers to get their tax right, and to keep up with the digital age. It moves away from the traditional paper-based or manual data entry system for Self Assessment to a fully digital process. The key components of MTD ITSA are designed to provide HMRC with more up-to-date information on taxpayers' income and expenses, aiming to reduce the tax gap caused by errors.

Digital Record Keeping

Maintain records of income and expenses using MTD-compatible software.

Quarterly Updates

Submit summaries of income and expenses to HMRC every three months.

End of Period Statement (EOPS)

An annual declaration to finalise business income and expenses, including any accounting adjustments.

Final Declaration

Replaces the SA100, consolidating all income sources and claiming reliefs.

Under the current Self Assessment system, individuals typically submit a single tax return (SA100) once a year, reporting all their income and expenses for the previous tax year. This often involves gathering a year's worth of financial information retrospectively, which can be time-consuming and prone to errors. MTD ITSA aims to mitigate these issues by requiring more frequent, smaller submissions of data, integrated with digital record keeping. This means taxpayers will need to use MTD-compatible software to record their income and expenses as they occur, or at least regularly throughout the year, rather than just once annually.

The shift to MTD ITSA represents a significant change in compliance for millions of self-employed individuals and landlords. It requires a proactive approach to tax management, integrating tax reporting into day-to-day business operations. The goal is to provide taxpayers with a clearer, more real-time view of their tax position, enabling better financial planning and reducing the likelihood of unexpected tax bills at year-end. HMRC anticipates that this digital transformation will ultimately simplify the tax process for businesses and individuals, making it easier to comply with tax obligations.

Who is Affected by MTD ITSA from April 2026?

The initial rollout of MTD ITSA focuses on a specific demographic of taxpayers. It is crucial for individuals falling into these categories to understand their obligations and begin preparing well in advance of the 6 April 2026 deadline.

Self-Employed Individuals

If you are self-employed and your gross income from your business or businesses exceeds £50,000 in a tax year, you will be mandated to follow MTD ITSA rules from 6 April 2026. This includes sole traders operating a single business, as well as those with multiple self-employment ventures. The £50,000 threshold refers to your total gross income from all self-employment activities. For instance, if you run two separate sole trader businesses, and the combined gross income from both exceeds £50,000, you will need to comply with MTD ITSA for both.

Landlords with Property Income

Landlords with gross income from property exceeding £50,000 in a tax year will also be brought into MTD ITSA from 6 April 2026. This applies to income from UK property. Similar to self-employment, if you own multiple properties, the £50,000 threshold is based on the combined gross rental income from all your properties. This means even if individual properties generate less than the threshold, their cumulative income could trigger the MTD ITSA requirement.

The Income Threshold Explained

The £50,000 threshold is based on your total gross income from self-employment and/or property. It is important to note that this is not profit, but gross turnover. For example, if a landlord has £60,000 in rental income but £20,000 in expenses, their gross income is £60,000, making them eligible for MTD ITSA. If an individual has both self-employment income and property income, these are combined to determine if the threshold is met. For example, if a sole trader earns £30,000 gross and also has £25,000 gross rental income, their combined qualifying income is £55,000, meaning they will need to comply.

Future Phases: £30,000+ from April 2027

Following the initial rollout, MTD ITSA will extend to self-employed individuals and landlords with qualifying income above £30,000 from 6 April 2027. This phased approach allows HMRC to learn from the first phase and gives more taxpayers time to prepare. It is anticipated that eventually, MTD ITSA will apply to all self-employed individuals and landlords who currently file Self Assessment tax returns, regardless of their income level, though no firm dates have been set for those below the £30,000 threshold.

Exemptions from MTD ITSA

While MTD ITSA is becoming mandatory for many, certain individuals and entities are exempt. These include:

• Individuals who are subject to insolvency procedures.
• Those who cannot comply with MTD ITSA requirements due to age, disability, or living in a remote location with no internet access. This is known as the 'digital exclusion' exemption.
• Trusts, estates, and non-resident companies (though these may have other digital reporting requirements).
• Individuals with religious objections to using electronic communications.

If you believe you may be exempt, it is important to contact HMRC to confirm your status. Voluntary compliance remains an option for those below the threshold or exempt, offering the benefits of digital record keeping and real-time tax insights.

How Does MTD ITSA Change Self Assessment?

The implementation of MTD ITSA fundamentally alters the mechanics of Self Assessment for affected taxpayers. It moves from a single annual submission to a continuous digital reporting cycle, requiring a more integrated approach to financial record keeping and tax compliance.

Digital Record Keeping

The cornerstone of MTD ITSA is the requirement to keep digital records of all business income and expenses. This means that instead of maintaining paper receipts, manual ledgers, or even standalone spreadsheets, taxpayers must use MTD-compatible software. This software must be capable of:

• Recording all relevant transactions digitally.
• Categorising income and expenses according to HMRC's requirements.
• Storing these records securely.
• Digitally linking to HMRC's systems to submit updates.

The aim is to ensure accuracy and to provide a clear audit trail for all financial activities. AccountsOS, for example, is designed to facilitate this, allowing users to capture expenses on the go, categorise income, and maintain a real-time digital ledger of their finances.

Quarterly Updates

One of the most significant changes is the introduction of quarterly updates. Instead of waiting until the end of the tax year, taxpayers will need to submit summaries of their business income and expenses to HMRC every three months. These updates are essentially snapshots of your financial activity during that quarter.

The deadlines for these quarterly updates are fixed, regardless of your accounting period end date. For a standard tax year running from 6 April to 5 April, the deadlines are:

Period	Deadline	Example
6 April - 5 July	5 August	First quarter for a tax year ending 5 April.
6 July - 5 October	5 November	Second quarter for a tax year ending 5 April.
6 October - 5 January	5 February	Third quarter for a tax year ending 5 April.
6 January - 5 April	5 May	Fourth quarter for a tax year ending 5 April.

These quarterly updates are not final tax calculations. They are simply summaries that allow HMRC to build a more accurate picture of your income throughout the year. They also give taxpayers a more regular insight into their potential tax liability, helping with budgeting and financial planning.

Worked Example: A Landlord's Quarterly Reporting

Consider a landlord, Sarah, whose property income is above £50,000. Her tax year runs from 6 April to 5 April.

• Quarter 1 (6 April - 5 July): Sarah collects £15,000 in rent and incurs £2,000 in maintenance expenses. By 5 August, she uses her MTD-compatible software to submit a summary of £15,000 income and £2,000 expenses.
• Quarter 2 (6 July - 5 October): Sarah collects another £15,000 in rent and pays £1,500 for a boiler service. By 5 November, she submits £15,000 income and £1,500 expenses.
• Quarter 3 (6 October - 5 January): Rent income is £15,000, and she pays £500 for insurance. By 5 February, she submits £15,000 income and £500 expenses.
• Quarter 4 (6 January - 5 April): The final quarter sees £15,000 in rent and £1,000 in agent fees. By 5 May, she submits £15,000 income and £1,000 expenses.

These quarterly submissions provide HMRC with a running total of Sarah's income and expenses, allowing both Sarah and HMRC to monitor her tax position more closely throughout the year.

End of Period Statement (EOPS)

After the end of the tax year, but before the final declaration, taxpayers must submit an End of Period Statement (EOPS) for each business or property income source. The EOPS is a crucial step where you finalise your business income and expenses for the tax year. This is where you can make any necessary accounting adjustments that were not included in the quarterly updates. These adjustments might include:

• Claiming capital allowances.
• Adjustments for accruals and prepayments.
• Stock adjustments.
• Correcting any errors made in the quarterly updates.
• Finalising any private use adjustments for business assets.

The EOPS is your chance to ensure that your annual figures are fully compliant with tax rules before the final tax calculation. The deadline for submitting the EOPS is the same as the current Self Assessment filing deadline for the tax year, which is 31 January following the end of the tax year (e.g., 31 January 2027 for the 2025/26 tax year).

Final Declaration

The Final Declaration is the ultimate step in the MTD ITSA process and effectively replaces the current Self Assessment tax return (SA100) for income sources covered by MTD. This declaration consolidates all your income sources, including those not covered by MTD (e.g., employment income, dividends, interest), and incorporates the finalised figures from your EOPS. It is where you claim any further reliefs, allowances, or deductions that apply to your overall tax position.

The Final Declaration will calculate your total income tax and National Insurance contributions for the year. The deadline for submitting the Final Declaration is 31 January following the end of the tax year. Once submitted, your final tax bill will be determined, and payment will be due by the usual deadlines (typically 31 January and 31 July for payments on account).

Will MTD ITSA Completely Replace the SA100?

For individuals whose only income comes from self-employment and/or property and falls within the MTD ITSA scope, the Final Declaration will effectively replace the SA100 for those specific income types. However, if you have other types of income not yet covered by MTD (such as employment income, dividends, bank interest, or foreign income), these will still need to be reported to HMRC. The Final Declaration will be the mechanism to bring all these income streams together for a comprehensive tax calculation. So, while the format and process of reporting business and property income change dramatically, the underlying principle of Self Assessment, which is to declare all taxable income, remains. The SA100 as a standalone form for all income will be superseded by the MTD ITSA Final Declaration for those within its scope.

Key Dates and Thresholds for MTD ITSA Implementation

Understanding the precise timeline and income thresholds is vital for effective preparation for MTD ITSA. HMRC has outlined a clear, phased approach to its implementation, allowing businesses and landlords time to adapt.

MTD ITSA Timeline

The journey to MTD ITSA has seen several adjustments, with the current timeline offering a structured rollout:

• Prior to 6 April 2026: Voluntary pilot scheme for MTD ITSA, allowing some self-employed individuals and landlords to test the system.
• 6 April 2026: MTD ITSA becomes mandatory for self-employed individuals and landlords with qualifying income over £50,000.
• 6 April 2027: MTD ITSA extends to self-employed individuals and landlords with qualifying income over £30,000.
• Beyond 2027: HMRC has indicated intentions to eventually bring all Self Assessment taxpayers into MTD, including those with lower incomes and general partnerships. However, no specific dates or thresholds have been announced for these further phases.

Detailed Explanation of the £50,000 Threshold

The £50,000 threshold refers to your total gross income from self-employment and/or UK property businesses in a tax year. It is crucial to understand that 'gross income' means your total turnover before any expenses are deducted.

Example Scenarios:

• Sole Trader: If your sole trade business generates £55,000 in sales in a tax year, you are within the scope of MTD ITSA from 6 April 2026.
• Landlord: If you receive £40,000 in rental income from one property and £15,000 from another, your total gross property income is £55,000. You are therefore within scope.
• Mixed Income: If you have a sole trade business with £25,000 gross income and also receive £30,000 gross rental income, your combined qualifying income is £55,000. You will need to comply with MTD ITSA for both your sole trade and property business.
• Below Threshold: If your gross sole trade income is £45,000, you are not mandated to join MTD ITSA in 2026. However, you might be in scope from 2027 if your income exceeds £30,000, or you can choose to join voluntarily.

HMRC will use the figures reported in your last filed Self Assessment tax return to determine if you meet the threshold. If your income fluctuates, you might move in and out of scope. If your income drops below the threshold, you may be able to opt out, but if it rises above again, you will need to re-join.

What About Partnerships?

While MTD ITSA is primarily focused on self-employed individuals and landlords, HMRC has stated its intention to bring general partnerships into MTD ITSA at a later date. Currently, MTD ITSA does not apply to partnerships. However, it is expected that when partnerships are brought into scope, they will also be required to keep digital records and submit quarterly updates, similar to sole traders. It is advisable for partners to keep an eye on HMRC announcements regarding MTD for partnerships.

The Benefits of Making Tax Digital (for HMRC and Taxpayers)

While the transition to MTD ITSA represents a significant change, it is designed to bring several long-term benefits for both HMRC and taxpayers.

Reduced Errors and Improved Accuracy

One of the primary drivers behind MTD is to reduce the 'tax gap' caused by errors. By requiring digital record keeping and regular, smaller submissions, MTD ITSA aims to:

• Minimise manual data entry: Digital links between software and HMRC reduce the chance of transcription errors.
• Catch errors earlier: Quarterly reporting means mistakes are identified and corrected more quickly, rather than being carried through an entire year.
• Promote better record keeping: The necessity of using MTD-compatible software encourages a more organised and accurate approach to financial records.

Real-Time View of Tax Position

For taxpayers, a significant benefit is the ability to have a more up-to-date understanding of their tax liability. Regular updates mean:

• Better financial planning: Businesses and landlords can see their estimated tax bill accrue throughout the year, allowing them to set aside funds more effectively.
• No year-end surprises: The quarterly snapshots reduce the likelihood of an unexpectedly large tax bill at the end of the tax year.
• Improved cash flow management: With a clearer picture of tax obligations, businesses can manage their cash flow more strategically.

Easier Tax Planning and Forecasting

MTD-compatible software often comes with features that can help with tax planning. By having real-time data, taxpayers can:

• Identify trends: Spot patterns in income and expenditure, which can inform business decisions.
• Forecast profits: Use current data to project future earnings and potential tax liabilities.
• Optimise allowances: Ensure all eligible expenses and capital allowances are claimed in a timely manner.

Streamlined Process and Reduced Administrative Burden (Long-Term)

While there's an initial learning curve, MTD is designed to streamline the overall tax process in the long run.

• Reduced time spent on year-end tasks: By keeping records digitally and submitting quarterly, the pressure of gathering a full year's data at once is alleviated.
• Integration with business operations: For many, MTD-compatible software will become an integral part of their day-to-day business management, making tax compliance a continuous, less burdensome activity.
• Modernisation: Aligning the UK tax system with other digitally advanced tax administrations globally.

Ultimately, HMRC aims for MTD ITSA to create a more transparent, efficient, and user-friendly tax system that benefits all parties involved by fostering greater accuracy and reducing the administrative burden over time.

Challenges and Criticisms of MTD ITSA

Despite the intended benefits, the transition to MTD ITSA is not without its challenges and has faced criticism from various stakeholders, particularly small businesses and professional bodies.

Increased Administrative Burden for Some

For many small businesses and landlords who currently manage their tax affairs with minimal digital tools or rely on an annual spreadsheet, the move to quarterly digital reporting can feel like a significant increase in administrative workload.

• Frequency of submissions: Four quarterly updates, plus an EOPS and Final Declaration, replace a single annual return. This higher frequency can be daunting.
• Learning new processes: Taxpayers may need to adjust their internal record-keeping habits and learn how to use new software effectively.
• Time commitment: While individual quarterly updates might be smaller, the cumulative time spent on tax compliance throughout the year could increase for those not already using sophisticated accounting software.

Cost of Software

The requirement to use MTD-compatible software introduces a new cost for many businesses. While some free software options may exist, many will opt for paid solutions that offer more features and support.

• Subscription fees: Ongoing costs for MTD-compatible accounting software can add up, especially for micro-businesses or landlords with modest profits.
• Training costs: Businesses may incur costs for training themselves or their staff on how to use the new software.
• Professional fees: Some may choose to rely more heavily on accountants to manage the MTD ITSA process, leading to increased professional fees.

Digital Exclusion and Digital Literacy

A significant concern is the potential for digital exclusion. Not all self-employed individuals or landlords are digitally savvy, or have reliable internet access.

• Lack of internet access: Individuals in rural areas or those with limited access to broadband may struggle.
• Limited digital skills: Older taxpayers or those with disabilities may find the digital requirements challenging, despite HMRC's efforts to provide support.
• Reliance on third parties: Those unable to comply digitally may become more reliant on friends, family, or paid professionals, potentially increasing their costs or reducing their independence.

HMRC does offer exemptions for those who are genuinely digitally excluded, but navigating this process can itself be a hurdle.

Complexity of Multiple Income Streams

For individuals with multiple income streams, such as a sole trade business, rental properties, and employment income, the process can become complex.

• Separate reporting: Each business or property income source needs separate quarterly updates and EOPS.
• Consolidation: The Final Declaration requires careful consolidation of all income types, some of which may still be reported outside of the MTD framework.
• Interaction with other taxes: Ensuring seamless integration with VAT (if applicable) and other tax obligations requires careful management.

While MTD aims for simplification, the initial transition period is likely to be challenging for many, requiring careful planning and adaptability.

Preparing for MTD ITSA: A Step-by-Step Guide

With MTD ITSA becoming mandatory from April 2026 for many, proactive preparation is key to a smooth transition. Here's a step-by-step guide to help you get ready.

1. Assess Your Eligibility and Income

First, determine if and when MTD ITSA will apply to you.

• Review your gross income: Look at your last few tax returns to identify your total gross income from self-employment and UK property. Remember, this is turnover, not profit.
• Combine income sources: If you have both self-employment and property income, add them together to see if you meet the £50,000 threshold for 2026, or the £30,000 threshold for 2027.
• Understand your start date: Based on your income, identify whether you need to comply from April 2026 or April 2027.

Even if you are below the threshold, consider joining the MTD ITSA pilot voluntarily to familiarise yourself with the process and reap the benefits of digital record keeping early.

2. Choose MTD-Compatible Software

This is perhaps the most critical step. You must use software that is recognised by HMRC as MTD-compatible.

• Research options: Explore different MTD-compatible accounting software providers. Consider factors like ease of use, features, cost, and customer support.
• Look for key features: Ensure the software can record income and expenses digitally, categorise transactions, and submit quarterly updates directly to HMRC. AccountsOS offers a comprehensive solution tailored for MTD ITSA.
• Consider your needs: If you have complex accounting needs, multiple businesses, or specific industry requirements, choose software that can handle these.
• Migration: If you currently use a different system, plan how you will migrate your existing financial data to the new MTD software.

3. Start Digital Record Keeping Early

Don't wait until the last minute. Begin keeping digital records using your chosen software well before your mandatory start date.

• Practice makes perfect: Get comfortable with the software's interface, how to input transactions, and how to categorise them correctly.
• Daily/weekly routine: Establish a routine for recording your income and expenses. This could be daily, weekly, or at least monthly, to avoid a backlog.
• Capture receipts: Implement a system for capturing and storing digital copies of your receipts and invoices. Many MTD software solutions offer mobile apps for this.
• Reconcile regularly: Link your bank accounts to your software for automated transaction feeds and reconcile them regularly to ensure accuracy.

4. Understand Quarterly Reporting

Familiarise yourself with the quarterly reporting periods and their respective deadlines.

• Mark deadlines: Add the MTD ITSA quarterly reporting deadlines to your calendar.
• Understand what to report: Know the specific categories of income and expenses that need to be summarised in each quarterly update.
• Review reports: Before submitting, review the quarterly summary generated by your software to ensure it accurately reflects your financial activity for that period.

5. Consider Professional Help

If you find the transition overwhelming or have complex tax affairs, consider engaging an accountant or tax advisor who is knowledgeable about MTD ITSA.

• Expert guidance: An accountant can help you choose the right software, set it up correctly, and ensure your records are compliant.
• Submission support: They can handle the submission of your quarterly updates, EOPS, and Final Declaration on your behalf.
• Tax planning: They can offer advice on optimising your tax position under the new MTD regime.

Preparing early and taking a structured approach will significantly ease your transition to Making Tax Digital for Income Tax Self Assessment, allowing you to focus more on your business or property ventures.

How AccountsOS Helps with MTD ITSA Compliance

AccountsOS is designed to simplify MTD ITSA compliance for self-employed individuals and landlords, ensuring you meet HMRC's requirements with ease.

Real-Time Digital Records

Effortlessly log income and expenses, keeping your records MTD-compliant.

Automated Quarterly Updates

Generate and submit your quarterly summaries directly to HMRC with ease.

EOPS & Final Declaration Support

Streamline the year-end process, ensuring all adjustments and claims are captured.

Deadline Reminders

Never miss a submission with timely alerts for all MTD ITSA deadlines.

AccountsOS provides an intuitive platform that connects directly to HMRC, allowing for seamless digital record keeping and submission of your MTD ITSA updates. Our features are built to guide you through each step of the process, from capturing your first expense to submitting your Final Declaration. We aim to take the complexity out of MTD, giving you confidence and control over your tax affairs.

Our intelligent categorisation tools help ensure your income and expenses are correctly attributed, maximising your allowable deductions. With real-time insights into your financial position, you can make informed decisions and avoid year-end surprises. AccountsOS is your trusted partner in navigating the new landscape of Making Tax Digital for Income Tax Self Assessment.

What If My Income Drops Below the Threshold?

The mandatory requirement for MTD ITSA is triggered by your qualifying income exceeding the set threshold (£50,000 from April 2026, £30,000 from April 2027). Your income can fluctuate from year to year, and it is important to understand what happens if your income subsequently drops below the mandatory threshold.

Voluntary Participation

If your income falls below the mandatory threshold, you are no longer legally required to follow MTD ITSA rules. However, you are not automatically removed from the system. You have the option to continue participating in MTD ITSA voluntarily. Many taxpayers may choose to do so because they have already invested in MTD-compatible software and have become accustomed to the benefits of digital record keeping and real-time tax insights. Continuing voluntarily can also simplify future compliance if your income later rises above the threshold again.

Opting Out of MTD ITSA

If your income drops below the mandatory threshold and you decide you no longer wish to comply with MTD ITSA, you can usually opt out. You would need to inform HMRC of your decision. Once opted out, you would revert to the traditional Self Assessment process, submitting an annual SA100 tax return.

It is important to note that if you opt out, and then in a future tax year your qualifying income once again exceeds the mandatory threshold, you will be required to re-join MTD ITSA. This would involve re-registering and ensuring you have MTD-compatible software in place for the relevant tax year.

Monitoring Your Income

Due to the fluctuating nature of income for many self-employed individuals and landlords, it is advisable to regularly monitor your gross income from all relevant sources. This will help you determine whether you are in or out of scope for MTD ITSA in any given tax year and allow you to plan accordingly, whether that means preparing to join, continuing voluntarily, or opting out. Most MTD-compatible software can help you track your income throughout the year, making this assessment easier.

Penalties for Non-Compliance with MTD ITSA

HMRC has introduced a new penalty regime for MTD ITSA, designed to encourage timely and accurate submissions. These penalties apply to various forms of non-compliance, including late submissions and errors.

Scenario	Penalty
Missing a Quarterly Update	Points-based system, leading to fines.
Late End of Period Statement	Fixed penalties, increasing with delay.
Inaccurate Records	Penalties for errors, depending on behaviour.
Failure to use MTD Software	Potential for non-compliance penalties.

Points-Based Penalty System: For late quarterly updates and EOPS, HMRC will implement a points-based system. Taxpayers will receive a point for each missed submission. Accumulating a certain number of points (e.g., 4 points for annual filers) will trigger a fixed penalty of £200. Further points can lead to additional penalties.

In addition to points for late submissions, HMRC can also levy penalties for inaccurate records. These penalties depend on the nature of the error:

• Careless errors: If the inaccuracy is due to a lack of reasonable care, the penalty can be between 0% and 30% of the extra tax due.
• Deliberate but not concealed errors: Penalties can range from 20% to 70% of the extra tax due.
• Deliberate and concealed errors: The most severe penalties, ranging from 30% to 100% of the extra tax due.

HMRC may reduce penalties if you disclose the error unprompted and cooperate fully. It is always better to correct mistakes as soon as they are identified.

Furthermore, failure to use MTD-compatible software when mandated to do so can also result in penalties for non-compliance. The new penalty regime is designed to encourage compliance and accuracy throughout the tax year, rather than just at the annual deadline. Therefore, understanding and adhering to the MTD ITSA requirements is paramount to avoid financial penalties.

MTD for Other Taxes: A Brief Overview

Making Tax Digital is a broader government initiative, and while MTD ITSA is the next major phase, it is important to recognise that MTD is already in effect for other taxes and has future implications for others.

MTD for VAT

MTD for VAT was the first phase of the Making Tax Digital programme. It became mandatory for all VAT-registered businesses from April 2019 (for those above the VAT threshold) and from April 2022 (for all VAT-registered businesses, regardless of turnover).

Under MTD for VAT, businesses must:

• Keep digital records of their VAT transactions.
• Submit their VAT returns to HMRC using MTD-compatible software.
• Ensure there is a digital link between their accounting software and HMRC.

This system has already transformed how VAT is reported, laying the groundwork for the similar principles now being applied to Income Tax Self Assessment.

Future Plans: MTD for Corporation Tax

HMRC has also stated its intention to extend Making Tax Digital to Corporation Tax (CT) for limited companies. However, this phase is currently in its early stages of development, and no firm timeline or specific details have been announced.

It is anticipated that MTD for Corporation Tax would likely involve similar requirements to MTD ITSA and MTD for VAT:

• Digital record keeping for company finances.
• Regular, perhaps quarterly, digital updates of company financial data to HMRC.
• Submission of the Corporation Tax return (CT600) via MTD-compatible software.

Businesses operating as limited companies should stay informed about any future announcements regarding MTD for Corporation Tax, as it will represent another significant shift in tax compliance for them. While the focus currently remains on MTD ITSA, the broader direction of travel for the UK tax system is clearly towards full digitisation across all major taxes.

Frequently asked questions

Is MTD ITSA compulsory for everyone?

No, MTD ITSA becomes mandatory for self-employed individuals and landlords with qualifying income over £50,000 from 6 April 2026. The threshold will reduce to £30,000 from April 2027.

What if I currently use a spreadsheet for my records?

Under MTD ITSA, you must use MTD-compatible software. This software will digitally link to HMRC, allowing for direct submission of your quarterly updates. Spreadsheets alone will not be sufficient unless bridged by MTD software.

Can I file my quarterly updates early?

Yes, you can file your quarterly updates any time within the reporting period or by the deadline. However, the data must be accurate for that specific quarter.

What is an End of Period Statement (EOPS)?

The EOPS is an annual statement that finalises the business income and expenses for your accounting period, allowing for any necessary accounting adjustments or claims before the final tax calculation.

How do I sign up for MTD ITSA?

You will need to register for MTD ITSA with HMRC and ensure you have MTD-compatible software. Most MTD software providers, including AccountsOS, will guide you through this process.

What happens if I make a mistake in a quarterly update?

Mistakes can be corrected either in a subsequent quarterly update or as part of your End of Period Statement. HMRC encourages corrections to be made as soon as they are identified.

Do I still need an accountant with MTD ITSA?

While MTD ITSA aims to simplify digital record keeping, an accountant can still provide valuable advice on tax planning, allowable expenses, and ensuring compliance, especially with complex tax affairs or multiple income streams.

Will my tax bill change because of MTD ITSA?

MTD ITSA changes how you report your income and expenses, not the underlying tax rules or the amount of tax you owe. However, having a more real-time view of your tax position may help with financial planning.

Related guides

• MTD for VAT Guide
• Tax Calendar
• Expense Tracking Features