If you’ve heard rumblings about Making Tax Digital for Income Tax (MTD ITSA) but aren’t quite sure what it means for you, you’re not alone.
The rules are changing—but there’s no need to panic. In this guide, we’ll explain what’s happening, when it’s happening, and how to get ready.
What is Making Tax Digital?
Making Tax Digital (MTD) is HMRC’s plan to move tax reporting online and in real time. The aim is to reduce errors and make tax “easier” (their words). It already applies to VAT-registered businesses. Income Tax is next.
Who Will Be Affected?
You’ll fall under MTD for Income Tax if:
- You’re self-employed or a landlord
- Your total business and/or property income is over £50,000 per year
- The rules kick in from April 2026 (for those over £50k), and April 2027 for those over £30k
If your income is under £30,000, you’re currently exempt—though that may change.
What Will Change?
Once MTD for Income Tax kicks in, you’ll need to:
- Keep digital records of your income and expenses
- Use MTD-compatible software (e.g. Xero, QuickBooks, FreeAgent)
- Send quarterly updates to HMRC via your software
- Submit a final year-end statement (like a Self Assessment, but digital)
In short: no more waiting until January to sort out the year—HMRC wants updates every 3 months.
What Doesn’t Change?
- You’ll still pay tax annually, not quarterly
- You’ll still calculate tax on your profits (income minus allowable expenses)
- You can still claim the same business expenses you do now
This is about how you report, not what you owe.
How to Prepare
1. Know your timeline
If your income is over £50,000, aim to be ready by April 2026. That gives you time—but don’t leave it too late.
2. Go digital now
If you’re still using spreadsheets or paper, now’s the time to switch. Software like Xero or FreeAgent makes record keeping much easier—and we can help get you set up.
3. Track income and expenses consistently
Quarterly updates mean you’ll need to stay on top of your bookkeeping. Get into the habit now and it’ll be far less stressful when the rules kick in.
4. Talk to your bookkeeper or accountant
If you’re not sure how MTD affects you, or whether you’ll need to comply, we can help assess your situation and get you on track.
What If I Don’t Comply?
HMRC plans to introduce penalties for late submissions and errors, likely based on a points system (similar to speeding points). It’s not active yet—but it will be. Better to get systems in place now and avoid future stress.
Summary
| What | Making Tax Digital for Income Tax |
| Who it affects | Sole traders and landlords earning over £50k (then £30k) |
| When | From April 2026 (£50k+), April 2027 (£30k+) |
| What you’ll need to do | Keep digital records, file quarterly updates via MTD software |
| How to prepare | Go digital, stay organised, and get support if needed |
Final Thoughts
MTD for Income Tax isn’t about paying more tax—it’s about reporting differently. With the right setup, it can actually make your business more efficient. But the earlier you prepare, the smoother the transition will be.
If you’re unsure where to start, or want a stress-free setup with ongoing support, get in touch. We help sole traders and landlords get MTD-ready without the hassle.
