It’s hard to believe, but it’s been nearly a decade since then-Chancellor George Osborne first announced the Making Tax Digital (MTD) initiative back in March 2015. The vision? To end traditional tax returns and revolutionise the tax system. While the rollout for small businesses has faced delays—many of which were worsened by the pandemic—MTD for VAT successfully launched for most VAT-registered businesses in April 2019.
Now, all eyes are on the next phase: MTD for Income Tax Self Assessment (MTD ITSA), currently set to start on 6 April 2026. While we’re still waiting for official confirmation from HMRC, new guidance has been issued to help taxpayers prepare. Here’s what you need to know.
What Is Making Tax Digital?
At its core, MTD is about two main requirements:
- Digital Record Keeping: Businesses must keep transaction records digitally via a ‘digital link’.
- Compatible Software: Tax returns must be submitted using HMRC-approved software that connects electronically to HMRC’s systems.
HMRC’s goal is greater transparency between a business’s accounting records and tax returns, reducing errors and making compliance easier and more efficient.
How Does MTD Work?
Under MTD, your bookkeeping records will be maintained digitally, and details will be sent to HMRC through compatible software. Here’s a quick breakdown:
- Quarterly Updates: You’ll need to submit cumulative updates to HMRC every quarter. These submissions can be made from 10 days before the quarter ends to one month and seven days afterward, aligning with current VAT deadlines. Errors can be corrected in the next update, so there’s no need to amend previous submissions.
- Year-End Final Declaration: At the end of the tax year, a final declaration will be required by 31 January. This submission will confirm the quarterly data and include any adjustments or claims, such as mortgage interest restrictions, capital allowances, or additional income from investments or employment.
Who Will Be Affected?
From 6 April 2026, MTD ITSA will apply to self-employed individuals, partnerships, and landlords with a combined gross income from these sources exceeding £50,000. A year later, from 6 April 2027, the threshold will drop to include those with income between £30,000 and £50,000. Taxpayers earning less than £30,000 will be exempt for now, but this is under review.
Important Note: The income thresholds are based on gross income, not net or taxable profit. If you have multiple income streams (like a trade and rental property), you’ll need to consider the combined figure.
What’s Next?
HMRC is gearing up for the April 2026 rollout. They plan to write to affected taxpayers after reviewing the 2024/25 tax submissions, offering guidance on who will need to join the scheme. Expect an awareness campaign, including advertising and educational webinars, to get everyone up to speed.
Practical Tip: Prepare Now
If you think you’ll be affected by MTD ITSA, it’s a good idea to open a separate business bank account if you haven’t already. Many business accounts come with built-in software that can make digital record keeping much easier.
Need Help Getting Ready for MTD?
Making Tax Digital is coming, and being prepared will save you a lot of hassle. If you need help understanding how this affects your business or want to ensure your systems are MTD-ready, contact Jon Davies Accountants today. We’re here to make tax simpler for you!
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