Making Tax Digital for ITSA
If you’re a business owner or landlord, you may have been hearing about ‘Making Tax Digital’ - and wondering where in the world to start with it all.
Making Tax Digital, or MTD, is finally dragging the tax system into the 21st century. It’s a new digital system that will make your life easier, but there are some key things you need to know so you’re not late on payments or submitting records.
Let’s dive into why MTD is here to stay and what you need to know about your tax returns changing.
What is Making Tax Digital?
MTD is a government initiative to modernise the UK tax system. The plan is for taxpayers to use digital tools to submit tax returns online so HMRC can keep an eye on fraud and errors, while making it easier for everyone to pay their taxes at the same time.
MTD was first announced by the government in 2015, so the change has been a long time coming - and we’re starting to see some of these much-awaited policies come into effect.
What’s happening with Self Assessments?
As part of the MTD scheme, income tax is next up on the roster to be digitised. At the moment Self Assessments involve keeping a record of everything to do with your business, then working out how much tax you owe at the end of the year.
MTD makes this a thing of the past. It’ll replace the current paper-based, annual Self Assessment with quarterly updates submitted online, an end-of-year statement and a final declaration.
Originally slated for April 2024, the Government announced in December it was adding a two-year delay to the income tax implementation.
From 6th April 2026, the new deadlines for submitting your income and expenses quarterly will be the 5th August, 5th November, 5th February and 5th May. If you miss any of these deadlines, you may get a penalty for being late.
At the end of each tax year you’ll also need to prepare an end-of-year statement for each income stream you have. This will all be compiled into a final declaration, which replaces the Self Assessment form. If you’re stuck, your trusty tax agent can help you with this.
What are the benefits?
There’s loads of information about how MTD is on the way and everything is changing, but let’s take a quick look at the benefits of the new system.
Less room for error: Taking everything digital means taxpayers and HMRC can be more accurate with any errors - plus, these can be corrected earlier on with the quarterly updates.
More efficient: MTD means no more paper-based records, faster access to information and faster filings. You’ll be spending less time on your taxes - a win win!
Streamlined: With digital record keeping there’s more efficiency, so in turn there’s fewer compliance issues.
Better cash flow: If you’re not already looking at your business’ incomings and outgoings on a quarterly basis, then you’ll be able to better manage your cash flow with this new method.
Who will be affected by MTD for ITSA?
MTD for Income Tax Self Assessment (ITSA) means business owners, self-employed people and landlords earning over £10,000 in income will all need to think about the way they report their earnings to HMRC.
Business owners and landlords will need to update HMRC quarterly on income and expenses. If you’re both self-employed and a landlord, you’ll need to do separate statements for each.
The good news is that there’s still plenty of time to prepare. MTD for ITSA isn’t set to be introduced until April 2026 for business owners and landlords. Corporation tax will join the party in 2026 (at the earliest). These are subject to change depending on HMRC.
Exemptions
There are some notable exemptions for who doesn’t need to register for MTD:
Businesses without a taxable turnover, like an RMC.
Businesses under the £85,000 VAT threshold for their annual turnover.
Companies with ‘special circumstances’ such as disabilities, natural disasters and bereavements may qualify for an exemption.
If you’re not sure whether you’ll be affected, you can always get in touch with us to find out more.
What will I need to do?
If you fall under MTD and you don’t know where to start, don’t panic - there are some steps you can take now to prepare for MTD.
Voluntary disclosure: To take advantage of digital record keeping and make sure you’re on the right side of the new requirements, you could voluntarily disclose earlier than the deadline.
Keep digital records: A lot of business transactions are online as it is, but there may be the odd paper receipt or invoice floating around that you’ll need to digitise.
Choose a good software for you: Submitting your quarterly updates will only be possible with the right software. You’ll need to have something that tracks all of your income and outgoings so you don’t miss anything out. We go into more detail on choosing the right software for you below.
Submit your tax return online: As the Self Assessment form is being replaced by the final declaration process instead, you won’t be able to submit your tax return unless it’s online. You can already do this now to familiarise yourself with the process.
What software you’ll need
Like we mentioned earlier, MTD has been years in the making - so the good news is there’s plenty of major accounting brands that are already prepared!
Online accounting software is your best bet for future-proofing your business. You can record all of your transactions, income and expenses in one place, then prepare your tax returns online. You can even give your tax agent access to the records so they can submit on your behalf. Some of the biggest brands are Quickbooks, Xero and FreeAgent.
If you’re already using software that isn’t MTD compatible, you can get bridging software that will help to make this transition a lot easier. You’ll still be able to use your current software, so no re-training needed, but the bridging program will make your records work for MTD.
Don’t know where to start? Handily, the Government has a full list of MTD-compliant software for your viewing pleasure.
That’s a wrap on the lowdown for MTD. If you want to hear more about how we can help your business with the changes, we’re here to help.