Since its inception in 2015, plans for Making Tax Digital for Income Tax (MTD ITSA) have been delayed, reassessed and revised. Though the prospect of moving to a digital system has loomed, some have begun to doubt whether this new scheme with ever materialise.
The government promises that these reforms will reduce the risk of error and fraud, whilst improving people’s financial awareness.
Whether the changes appear in their current form is yet to be seen, but it’s worth being aware of what is proposed to ensure you are prepared.
Who will be affected?
From 6 April 2026, people with trading and/or property income over £50,000 per annum will be required to keep digital records of income and expenses, report information quarterly to HMRC and make a final declaration at the end of the year, equivalent to the current Self-Assessment tax return…
From 6 April 2027, those with income (from trading/property) over £30,000 per annum will also need to fulfil these requirements.
If your income (from trading/property) is below these thresholds, you may continue using the traditional Self-Assessment system.
Note: These thresholds concern income, not profit. If you have more than one source of income from trading or property, these must be combined to determine whether you surpass the threshold.
It is currently uncertain how these requirements will apply to jointly held property.
The requirements
Those affected will need to…
- Record each individual transaction (income/expenses) digitally, summaries will not be sufficient.
- Submit quarterly reports through ‘MTD compatible software’ that records all income and expenditure. Tax and accounting adjustments do not apply to these reports, unlike a full tax return.
- Submit a final declaration after the end of the year to provide detail of all other income, including investments and savings interest, as well as your final business profit/loss, after any tax and accounting adjustments. From this, HMRC can calculate your Income Tax due.
Note: When keeping your digital records and making your quarterly submissions, each income source (for example from your business and a rental property) must be recorded and reported separately.
How to prepare
Whilst the deadline of April 2026 (or April 2027) can be taken with a pinch of salt, given the previous pushbacks, we have outlined a few considerations and potential actions you could take to prepare for the arrival of MTD ITSA:
- Review how you are currently keeping your records. Will this comply with the new digital record keeping requirements?
- If you have multiple sources of (relevant) income, are you keeping records for each?
- If you work with an accountant, it might be worth discussing both digital record keeping and the quarterly submissions with them. Whilst you are not required to make tax and accounting adjustments as part of these processes, it could clarify how to manage your data to best effect.
- It’s currently unclear how quarterly reporting will interact with the changes to basis periods. This is where a business’s accounting period is not aligned with the tax year. For more information on this please read our article. In this situation (and if you have not done this already), it might be preferable to align your year-end with the tax year to reduce complexity.
Need some guidance?
How MTD ITSA is going to be rolled out wholesale isn’t entirely certain. For example, knowing what software is going to be applicable (and practical to use) has not yet been fully determined. Consequently, we can only share the information we have with you.
If you have any questions with regard to this, please get in touch with us and member of our team will do their best to assist you.
