MTD For ITSA Is Coming

From April 2026 the first phase of Making Tax Digital (MTD) for income tax self-assessment (ITSA) begins.

What will this mean for you:

• If your income from sole trader profits and rental income is over £50k then you will need to start completing quarterly returns to HMRC through software, as well as the year end declaration.
• HMRC will base the £50k figure on what you have reported on your 2024/25 tax return, however they will be writing to you in April 2025 if the figures on your 2023/24 return took you over the limit.
• Once you are in MTD for ITSA you are in for three years, even if your income drops below the threshold
• Partnerships and Companies are not currently caught by these new rules
• A quarterly update will be required for each trade to be submitted on the 7^th of the month following the end of the quarter. So the first quarter will be 30 June 2026 due for submission by 7^th August 2026.
• If your total income from sole trader profits and rental income is more than £30k, you will need to start doing returns from April 2027. Therefore there is no point in delaying if your income will be just below £50k.
• Although the frequency for reporting is going to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31st January after the tax year is expected to remain in place for the foreseeable future.
• We would advise if you haven’t done so already, to open an additional bank account for the self-assessment or rental income. This will minimise the need to have personal bank accounts available for HMRC viewing.

What do you need to do:

• If you are not already on software then you will need to move onto software. We would advise that you start this from April 2025 so you have a year to get used to this.
• If you are on software there is no action required currently, however in due course you will need to sign up for MTD for ITSA, to be able to submit returns.

What you should use:

The following software packages will be suitable for making the submissions to HMRC:

• Xero Simple – From £7.00 + VAT per month  Get ready for MTD for Income Tax | Xero
• FreeAgent – £10.00 + VAT per month or free when you open a Natwest or Mettle bank account – Simple pricing plans made for small businesses – FreeAgent
• QuickBooks – From £10.00 + VAT per month – QuickBooks Pricing & Costs | QuickBooks UK

Get In Touch

Please do get in touch with your local office to see how they can help you prepare for MTD for ITSA further.

Disclaimer - All information in this post was correct at time of writing.