MAKING TAX DIGITAL

FYI. MTD ITSA. JDI! MAKING TAX DIGITAL

Oh how HMRC loves an acronym. MTD ITSA (Making Tax Digital for Income Tax Self-Assessment) is one of the latest to be added to our vocabulary.

Your initial reaction might be ‘yawn’. But this shorthand acronym relates to the biggest change to the UK tax system since the introduction of Self-Assessment in the mid-90s.

It comes into effect in April 2026. You might think that’s a way off. But believe us if you currently submit a Self-Assessment Return and have self-employment/rental income you’re potentially affected. You need to get your ducks in a row before MTD ITSA comes into force.

For some time HMRC and government ministers have been talking about a key aim of making tax digital. They see it as a way to ensure the right amount of tax is collected. Reduce errors and miscalculations. And no doubt ultimately save money in doing so.

WHAT ARE THE MTD ITSA CHANGES?

From April 2026, businesses, self-employed individuals, and landlords with income over £50,000 are being ‘mandated’ to join first.

Those with income over £30,000 will be mandated from April 2027.

The government is still considering how to deal with smaller businesses, and particularly those under the £30,000 threshold. Once that review is complete, the government will lay out the plans for any further mandation of MTD for ITSA.

If you’re caught by the criteria above, you’ll need to:

• Maintain digital accounting records using approved software. Or use a spreadsheet combined with a “bridging” software. This will need to allow a digital link to submit the information to HMRC. This will be a line-by-line record of each transaction (income and expenditure) in the software/spreadsheet noting the amount, date and category.
• Submit quarterly submissions and an end of period statement (“EOPS”) to HMRC. You’ll need to do this for each type of income stream (see example below); and
• Finalise your tax position after the end of the tax year with a Final Declaration. The declaration will capture all other income streams and any reliefs you are entitled to. This effectively replaces the Self-Assessment tax return.

WHAT WILL MTD ITSA MEAN FOR ME?

So. There’s potentially more admin. You’ll also have to look at how you submit your information. The emphasis is upon MTD ITSA being digital and online. As the name suggests. You’ll need to submit at least six reports for each tax year:

HERE’S ONE WE MADE EARLIER

For those who don’t already complete VAT Returns, this may be a shock. To help you see what’s required, we’ve run through an example. See here.

The tax payment due dates are not changing they remain as 31 July and 31 January. However, there will be a new penalty system. There are some exemptions, but they are pretty narrow and claims against penalties need to be made direct to HMRC.

WHAT DO I NEED TO DO NOW?

This is going to be a massive change and one you need to prepare for. We’re embracing this change. It is going to happen. We’ve been undertaking a massive review of our systems. We’re looking at new processes and software. We want to make this process as easy as we can for all our clients. We want to ensure you’re fully compliant with the new rules.

Based on the detailed guidance previously available we believe HMRC will use the Tax Return submitted for 2024/25 to see if you’re captured. We’re here to help you review if there are any planning opportunities to keep you out of MTD ITSA. We’ll help you get your records digitalised. We’ll discuss with you how you want us to help you manage the reporting requirements.

There are still some moving parts as HMRC is still finalising the finer details. Unsurprisingly they’re still working on their systems for capturing the reporting. We’ll make sure you’re kept up to date through regular articles. Our promise to you is that we have your back and will make this change as easy as possible for you.

For those who love the detail, see here for a more detailed list of the requirements.