Making Tax Digital for Income Tax and Self Assessment (MTD for ITSA) will significantly change how some taxpayers file their income tax returns.

As part of HMRC's strategy for digitising the UK tax system, the implementation of MTD for ITSA has been delayed until 2026.

MTD for ITSA in a nutshell

MTD for ITSA will apply to self-employed people and landlords. From April 2026, taxpayers in these groups with an annual income of £50,000 or more must comply with the new rules. Those with income between £30,000 and £50,000 will be mandated to join from April 2027.

MTD for ITSA involves:

  • Making quarterly submissions to HMRC of all income and expenditure, not annually.
  • Using only MTD compatible software, i.e. accounting software or using spreadsheets and bridging software that link directly to HMRC's online MTD for ITSA portal.
  • Making HMRC aware of any accounting adjustments or allowances that are being claimed at the end of the year.
  • Submitting an End of Period Statement.
  • Submitting a Final Declaration and paying any tax due by 31 January.

These changes could be considerable for some taxpayers, so it is advisable to start transitioning to the new rules sooner rather than later.

The benefits of moving to MTD compatible software before 2026

If you are going to be caught under these new rules, the benefits of moving sooner rather than later include the following:

Reduce the risk of errors

One of the main advantages of MTD software is that it reduces the risk of errors in tax returns. MTD software can automatically calculate tax liabilities and identify potential errors or omissions, which can help you to avoid penalties and reduce the risk of an HMRC investigation. By using MTD compatible software before the 2026 implementation date, you can benefit from using these digital tools and reduce the risk of making mistakes in your tax returns.

Save time and effort

MTD for ITSA requires you to keep digital records of your income and expenses, which can be time-consuming and tedious. However, once these records are set up, it can save time and effort in the long run. Digital records can be automatically populated with information from your bank accounts and other sources, and most MTD software can help to categorise and organise expenses. By transferring early to MTD, you can benefit from these time-saving features and reduce your tax compliance burden.

Get real-time visibility on your income/businesses and your tax position

Another benefit of MTD software is that it provides real-time visibility of your business's performance. By logging all of your income and expenditure on a monthly or quarterly basis, you will better understand how well the business is performing so that you can make quicker and better-informed decisions when needed.

Furthermore, most MTD software can calculate tax liabilities as income and expenses are recorded, meaning you can see how much tax you owe at any time. This helps avoid surprises at the end of the tax year and allows you to plan and manage your cash flow more effectively. By transferring early to MTD compatible software, you can benefit from this real-time visibility and improve your financial management.

Prepare for the future

By transferring early to using MTD compatible software, you can prepare for this eventuality and ensure you comply with the new regulations. This can help to avoid a last-minute rush to comply with the new rules and reduce the risk of penalties.

Conclusion

There are several benefits to transferring to MTD software before the legislation commences. It is worth considering making the switch sooner rather than later. Using MTD software to manage tax compliance, you can reduce the risk of errors, save time and effort, get real-time visibility of your tax liabilities, access support, and prepare for the future.

Help and support from DWilkinson&Company

Having helped many clients transition to MTD for VAT in recent years, we have extensive experience of understanding the process of becoming MTD compliant. We can also advise which MTD software will best suit you and your circumstances.

If the thought of using MTD software is daunting or too time-consuming, we can take care of the bookkeeping aspects. In doing so, we will ensure your data is entered accurately and in the correct format. This means that when MTD for ITSA does become mandatory, your accounting processes will already be in place, and we can ensure the digital linking to HMRC's MTD for ITSA portal runs seamlessly.

In many cases, it can be more cost effective for us to handle your bookkeeping requirements and ensure you adhere to the MTD for ITSA rules than for you to spend time doing it (and potentially worrying about it).

To have a no-obligation discussion about MTD for ITSA, how it will impact you, and how we can help you, please get in touch with your nearest DWilkinson&Company office.