Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) marks HMRC’s next major step in modernising the UK tax system. The changes will affect how many sole traders and landlords keep records and report their income.
The rules apply to self-employed individuals and landlords whose combined business and property income exceeds £30,000. From April 2026, HMRC will require those with qualifying income over £50,000 to comply. From April 2027, the threshold will reduce to £30,000.
Partnerships do not fall within the initial scope. However, the government has confirmed that partnerships will join the regime at a later date.
What MTD For ITSA Involves
Under MTD for ITSA, taxpayers must keep digital records using HMRC-compatible software. Instead of relying on manual records and one annual submission, taxpayers will send income and expense information to HMRC through quarterly updates.
These updates create a running picture of the tax year. Taxpayers will still submit a final end-of-year declaration to confirm their figures and finalise their tax position.
Why HMRC is Introducing The Change
HMRC aims to help taxpayers get their tax right first time. The department estimates that errors in Self Assessment contribute around £5 billion each year to the tax gap.
Experience from Making Tax Digital for VAT shows that digital records and more frequent reporting reduce mistakes and cut down the time spent correcting errors later. For many businesses, this approach should also ease the pressure that often builds up around the Self Assessment deadline, as records stay up to date throughout the year.
Background and Timing
The government first announced Making Tax Digital in 2015, before introducing MTD for VAT in 2019. Following further consultation and a review of the impact on smaller businesses, HMRC confirmed revised start dates in December 2022.
In Autumn 2023, the government announced further simplifications to reduce administrative burden and improve usability. HMRC expects around 780,000 people to join MTD for ITSA in April 2026, with a further 970,000 joining from April 2027.
Costs and Software
Some businesses may face additional costs, particularly those moving away from paper records. These costs may include software subscriptions, training time or extra accountancy support. In most cases, businesses can claim these costs as tax-deductible expenses.
Businesses that already use accounting software, or that already comply with MTD for VAT, should experience minimal disruption. HMRC continues to work with software providers to ensure access to affordable options, including free software for smaller or simpler businesses.
Exemptions and Support
Taxpayers who cannot use digital systems because of age, disability, location or other valid reasons can apply for an exemption. HMRC uses a similar exemption process for MTD for VAT.
HMRC has also committed to supporting taxpayers through agents, helplines, webchat services and accessible online guidance to help them transition to digital record keeping.
Getting Ready
Although MTD for ITSA will require some adjustment, it aims to simplify tax compliance and reduce errors over time. Sole traders and landlords who expect their income to exceed £30,000 can benefit from preparing early. Moving to digital records now can make the transition much smoother once MTD becomes mandatory.
Contact the team today to discuss how MTD for Income Tax will affect you and how we can support you.