What Is MTD ITSA, and How Will It Affect Self-Employed Individuals?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a major change in the way self-employed individuals and landlords in the UK manage and report their taxes. For the government, it means better oversight and more accuracy, but for the self-employed and private landlords, it's also more work. 

If you’re self-employed,  how you record your income and submit your tax returns. Below is an update on what MTD is, and what you need to do make sure you are compliant.

What Is MTD ITSA?

MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. If you've been VAT registered for a while, you'll remember the introduction of MTD for VAT, and the requirement for digital submissions via software. MTD for income tax is the next step. But don't get caught out, this applies regardless of whether you're VAT registered or not. 

Under MTD ITSA, you’ll need to:

1.Keep digital records of your income and expenses.

2.Submit quarterly updates to HMRC through MTD-compatible software.

3.File an End of Period Statement (EOPS) and a Final Declaration to confirm your annual income and tax obligations. This is akin to your current self-assessment tax return. 
 

Who Does MTD ITSA Apply To?

MTD ITSA will apply to:

•Self-employed individuals and landlords with annual business or property income exceeding £50,000 starting from April 2026.

•Those with income from self-employment or property between £30,000 and £50,000 starting from April 2027.

How Will MTD ITSA Affect You?

1.Digital Record-Keeping

If you’re used to keeping paper records or spreadsheets, you’ll need to switch to MTD-compatible software to maintain your records digitally.

2.Quarterly Reporting

Instead of filing a single Self Assessment tax return once a year, you’ll submit four quarterly updates to HMRC. These updates provide a snapshot of your income and expenses throughout the year.

3.End of Year Submissions

You’ll still need to finalise your accounts at the end of the year, and produce an an end of year submission, with all the usual adjustments you'd make now before filing self-assessment. 

What Do You Need To Do To Prepare For MTD ITSA?

1.Determine If MTD ITSA Applies to You

Check your annual income from self-employment or property to see when you’ll need to comply with MTD ITSA.

2.Choose MTD-Compatible Software

Popular options like QuickBooks, Xero, and FreeAgent are all MTD-compatible. These tools will help you maintain digital records and submit quarterly updates seamlessly.

3.Organize Your Records

Ensure your income and expense records are accurate and up to date. If you’ve been relying on paper receipts, it’s time to transition to a digital system.

4.Learn the New Process

Familiarize yourself with how to submit quarterly updates, End of Period Statements, and the Final Declaration.

5.Seek Professional Advice

Navigating MTD ITSA can be complex, especially if you’re new to digital accounting. A trusted accounting professional can guide you through the transition and ensure compliance.

FAQs

What records do I need to keep digitally?

You’ll need to maintain digital records of:

•Income

•Expenses

•Bank transactions related to your business or property

These records must be stored in MTD-compatible software and submitted to HMRC via quarterly updates.

How often do I need to report under MTD ITSA?

You’ll need to submit:

•Four quarterly updates summarizing your income and expenses throughout the year.

•An End of Period Statement (EOPS) at the end of the tax year to confirm your figures.

•A Final Declaration to declare all your income and confirm your tax liability.

What software do I need for MTD ITSA?

You’ll need MTD-compatible software to manage your records and submit updates. Popular options include:

•QuickBooks

•Xero

•FreeAgent

We can help you choose the best software for your needs and set it up for you.

What happens if I don’t comply with MTD ITSA?

Failure to comply with MTD ITSA requirements may result in penalties from HMRC. These could include fines for late submissions or non-compliance with digital record-keeping rules.

Do I still need to file a Self Assessment tax return?

No, MTD ITSA replaces the traditional annual Self Assessment tax return. Instead, you’ll submit quarterly updates, an EOPS, and a Final Declaration through your MTD-compatible software.

My income is under £30k, am I affected?

HMRC is still consulting on how MTD ITSA will apply to individuals earning below £30,000 annually, but it’s important to stay informed about future changes.

Still Have Questions? Don't Want To Deal With IT(SA!) Yourself? 

Making Tax Digital for Income Tax Self Assessment is a significant change, but you don’t have to face it alone. At Len Valley Bookkeeping, we are fully up to date with MTD ITSA and ready to help self-employed individuals and landlords prepare for MTD ITSA. Whether you need help setting up software or understanding your obligations, we’re here for you.