Making Tax Digital for Income Tax Self Assessment
Making Tax Digital for Income Tax Self Assessment is nearly here. We look at what it means for you.
What is Changing?
From April 2026 Making Tax Digital for Income Tax (MTD ITSA) comes into force. In the 2026-27 tax year relatively few people will have to comply with the new regime but eventually MTD ITSA will become mandatory for everyone.
Under the current system tax payers submit an annual tax return but under MTD ITSA tax payers will be submitting 4 quarterly updates in addition to the final tax return.
Although reporting will be required quarterly, tax will not need to be paid quarterly. For now Income Tax payments continue to fall due on 31st Jan and 31st July annually.
Does it Affect Me?
For now MTD IT affects Self Employed people and landlords, but not Company Directors and Partnerships.
The system is being brought in for these people in 4 phases:
From 6 Apr 2026 for people with Qualifying Income above £50k
From 6 Apr 2027 for people with Qualifying Income above £30k
From 6 Apr 2028 for people with Qualifying Income above £20k
From 6 Apr 2029 for people with Qualifying Income under £20k
Qualifying Income is defined as the total property and self employed income in a tax year. It includes trading income (as a sole trader), rental income but it does not include PAYE, Interest, Dividends or Pension Income.
It is also important to note that Qualifying Income is defined as gross income before the deduction of expenses rather than net income (income minus expenditure).
For example if in the 2024-25 tax year you had Sole Trader revenue of £40k and Property Income of £20k your Qualifying Income was £60k and you must register for MTD ITSA by April 2026.
What should I do now?
Firstly if you are a Sole Trader or Landlord you should check if you need to register for MTD ITSA by April 2026, and if you are get yourself onto MTD ITSA compliant software. For clients of Co- we will already have contacted you.
You will also be required to sign up for MTD ITSA by HMRC. HMRC should write to inform you of this requirement but if in doubt contact your accountant.
What should I expect once I am signed up?
The quarterly updates will have to be submitted using your tax software and are due one month and 7 days after the period end. Therefore once per quarter you will need to make sure that your bookkeeping software is brought up to date.
Perhaps the only good piece of good news in MTD ITSA is that MTD ITSA software will then also provide a quarterly estimate of tax due on trading in the year. This should allow sole traders and landlords to plan their tax better.
