Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is a government initiative to transform the tax system and move it online. The aim is to make “fundamental changes to the way the tax system works – transforming tax administration so that it is: more effective, more efficient and easier for taxpayers to get their tax right”.
But what does this plan mean for you in practice?
Currently, it only affects you if you are VAT registered but it will affect everyone in the coming years, whether you are a sole trader, partnership, landlord or limited company.
If you are VAT registered you should already be keeping your bookkeeping records electronically on MTD compliant software and submitting VAT returns online.
In December 2022 the timetable for roll-out was amended so that from April 2026 sole traders and landlords with a turnover over £50,000 per annum, and from April 2027 those with a turnover exceeding £30,000, will be required to use MTD compliant software for their bookkeeping and submit quarterly MTD for Income Tax Self Assessment (MTD ITSA) returns, whether VAT registered or not.
Partnerships will be brought into MTD at a later undefined date and limited companies are expected to be required to comply with MTD rules from April 2026.
The government has also announced a review into the needs of smaller businesses with taxable income below the £30,000 taxable income threshold. The aim is to find out how MTD for ITSA can be adapted to better meet the needs of smaller businesses so they can meet their Income Tax obligations. The government says this will affect any further roll out of MTD for ITSA after April 2027.
The receipts threshold in the regulations is based on the amounts that were reported on the last tax return that was due before the start of the tax year under consideration. For example, MTD for ITSA would not be expected to apply in 2026/27 if the total business receipts on the 2024/25 tax return were £50,000 or less (i.e. the return due on 31 January 2026).
As well as quarterly MTD returns, the exact format of which has not yet been released by HMRC, you will still be required to submit your usual annual tax return.
For example, a person with simply a sole trade business and rental income could have to submit nine returns annually: four quarterly MTD returns for the business, four for the rental income, and one final tax return. If the business is VAT registered there could be a total of thirteen online returns per annum!
If this burden is likely to be too much for you to tackle alone, we can help. This can be from as little as setting you up on suitable software and giving you a bookkeeping lesson, right through to taking over the bookkeeping in its entirety, submitting quarterly VAT and MTD returns on your behalf and dealing with your year-end submissions too.
We offer MTD compliant Sage Business Cloud software FREE to all new clients for 12 months and at a 50% discount thereafter, so there is no better time to come and chat to us to see how we can assist you.
With a no obligation FREE initial meeting you have nothing to lose. Contact us today.