Making Tax Digital for Self-Assessment- What is it and how will it impact me?

What is MTD ITSA?

With the HMRC aim of digitalising the tax system, they have introduced Making Tax Digital for Income Tax Self-Assessment.

MTD ITSA requires businesses with qualifying income over £50,000 to maintain digital records which allows quarterly reports to be provided to HMRC, from April 2026. With the qualifying income limit being reduced to £30,000 from April 2027.

Qualifying income is deemed as your turnover from self-employment/rental income before deduction of any expenses. This does not include employment, interest or dividend income.

How will it impact me?

If you fall into the qualifying income threshold in which you will have to report under the MTD ITSA rules, you will be required to use approved software (a few are listed on gov.uk, but more will be added) to record and submit quarterly reports to HMRC. HMRC will then make an estimate of your tax liability for that tax year, but no payments will be due to HMRC.

This allows for more efficient tax planning and cashflow management for individuals.

It is important to note that online software is not the only reporting platform individuals can use. Spreadsheets can be used, but they will need to be compatible with bridging software which will be used to report to HMRC.

As usual, once the 6 April has passed and all four quarterly reports have been submitted, the individual will have until 31 January the following year to submit their final figures to HMRC, and subsequently pay the tax due. The final figures will be submitted through an End of Period Statement (EOPS), with any year end adjustments being included. The individual will then also need to submit a year end tax return as normal, which includes all income streams.

What can I do to prepare now?

If you suspect that you will fall into the MTD ITSA rules, it would be beneficial to start considering which software you may be interested in using. It would be a good idea to start using the software before MTD ITSA comes into place to familiarize yourself with how the software works and feel comfortable that the information provided will be accurate and reliable.

HMRC launched the first pilot BETA software for MTD ITSA on 22 April 2024, to trial the reporting environment which will come into place from 2026. Individuals can sign up and trial the system before it becomes mandatory. This is a great opportunity for individuals to familiarize themselves with MTD ITSA early.  It also gives access to HMRC’s dedicated MTD customer support team, who can help you with any queries regarding the system and you can provide feedback to help the transition to MTD ITSA to be smooth and efficient. To sign up to the pilot please click here.

Here at Perrys we are happy to assist with any queries you may have with regards to software, getting set up, how to process your quarterly submissions and any other questions you may have. If you would like further information, please contact your local Perrys office.