Making Tax Digital for Income Tax is Coming
The tax landscape for self-employed individuals and landlords is changing—again. HMRC’s Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) is scheduled to come into effect from April 2026.
While that may sound distant, businesses and individuals affected by the changes need to start preparing now. The shift from annual paper tax returns to digital quarterly submissions could mean significant adjustments for many.
What is Making Tax Digital for Income Tax (MTD for ITSA)?
MTD for ITSA will require self-employed individuals and landlords with business or property income over £50,000 to keep digital records and submit quarterly updates to HMRC using MTD-compatible software.
From April 2027, the threshold drops to £30,000, bringing more taxpayers into scope.
The goal? To improve accuracy, reduce errors, and streamline the tax process. But for many, it means moving away from spreadsheets or paper-based systems entirely.
Who Will Be Affected?
- Sole traders
- Landlords with rental income
- Partners in partnerships (though this is delayed until after 2027)
- Those with combined self-employed and rental income exceeding the thresholds
If your total income from these sources is under £30,000, you won’t need to join MTD (yet)—but it’s still worth planning ahead.
Key Changes You Need to Know
✅ Quarterly Submissions
Instead of one Self-Assessment tax return each year, affected taxpayers will need to submit a summary of income and expenses every quarter.
✅ Digital Records Required
Manual record-keeping won’t be allowed. Digital bookkeeping software or spreadsheets linked to MTD software will be compulsory.
✅ End of Paper Tax Returns
Once MTD applies, paper Self-Assessment returns will no longer be accepted for those in scope.
✅ Final Year-End Declaration
A fifth ‘end-of-period statement’ is required annually to finalise income and claim reliefs.
What Should You Do to Prepare?
- Review Your Record-Keeping Process
Now is the time to assess how you currently track income and expenses. If you’re still using spreadsheets or paper, you’ll need to switch to digital software by 2026. - Explore MTD-Compliant Software
There’s a growing list of HMRC-approved software providers designed for small businesses and landlords. Many cloud-based options offer automation features, bank feeds, and easier VAT reporting. - Budget for Additional Costs
Software subscriptions will add a new cost, and your accountant’s workload may increase with quarterly submissions. Planning for these costs now avoids surprises later. - Speak to Your Accountant
Accountants can offer advice about:
- Choosing the right software
- Setting up new systems
- Minimising tax liabilities under MTD rules
- Pilot Schemes Are Available
Voluntary MTD pilots are already running. Early adopters can trial the system now and iron out problems before the mandatory start.
Potential Benefits of MTD for ITSA
While the change feels like a burden for some, there are potential upsides:
✅ More up-to-date financial information
✅ Easier to plan for tax bills and set aside funds
✅ Fewer errors thanks to automated software calculations
✅ Streamlined processes for those already using digital tools
The Risks of Leaving It Too Late
Ignoring MTD could lead to:
❌ Penalties for late or inaccurate submissions
❌ Missed tax planning opportunities
❌ Increased accounting costs due to rushed implementation
MTD for Income Tax represents one of the biggest changes to Self-Assessment since it began. For businesses and landlords still reliant on manual systems, the shift to quarterly digital reporting will take time and planning.