MTD for ITSA Explained
Making Tax Digital for Income Tax and Self Assessment, often abbreviated to ‘MTD for ITSA’ is a government initiative which will require businesses and landlords with qualifying income to maintain digital records and report to HMRC each quarter using compatible software.
Will this affect me?
If you are a sole trader or a landlord and your business or property income is over £20,000, this will eventually affect you.
Not everyone will be transitioned to MTD for ITSA straightaway:
Phase 1 – If your income exceeds £50,000, MTD reporting will start from 6 April 2026.
Phase 2 – If your income exceeds £30,000, MTD reporting will start from 6 April 2027.
Phase 3 – announced as part of the Autumn 2024 budget, there is a commitment to expand this to those with income of more than £20,000 by the end of this parliament (by 2029).
It is worth noting that where property is jointly owned, only the individual’s share of the income from that property will count towards their qualifying income (and not the total rental income for the property).
Why is this happening?
The government is introducing this to help reduce errors and make it easier for everyone to get their tax right as well as budget for payment. Using digital software allows you to keep up to date on your business income and expenditure and reduce the potential for any errors.
What will I need to do?
Business income and expenditure must be recorded in a digital format using a software and four quarterly updates will need to be submitted to HMRC:
Period Deadline
6 April to 5 July 7 August
6 July to 5 October 7 November
6 October to 5 January 5 February
6 January to 5 April 5 May
You can elect for a calendar quarter which will align with the end of the month rather than the 5th of the following month.
Following the final submission, a final declaration will be submitted to HMRC to determine the final tax amount payable. Within the final declaration, any adjustments that are required can be made and must be submitted by 31 January following the end of the tax year.
Will I need to pay more often?
You will not be required to make a payment every quarter, payment dates of 31 January and 31 July (if you make payments on account) will remain the same.
What can I do to prepare?
If you will be affected and are not already using a software, it would be wise to start using one. If you commence from 6 April 2025 to cover the new 2025/26 tax year, you will have been using the software for a full year before the new reporting comes in and this will help you get used to it and iron out any issues.
In preparation, the majority of our clients are already on Xero which is a MTD compatible software, and we’ll be providing guidance to ensure compliance as well as assisting clients with their reporting. If you’d like some assistance with this transition, please feel free to reach out to our team.
This summary is to serve as a guide, further information can be found on the Government website and it should not be taken as professional advice.