As the government pushes forward with plans to roll out the next phase of Making Tax Digital (MTD), specifically for Income Tax Self-Assessment (ITSA), businesses and landlords across the UK are preparing for a significant shift in how they record and report income.
In our latest blog, Lucy Welch, Executive at Bevan Buckland and the tax team, break down the latest developments in MTD for ITSA, outlines the implementation timeline, and explores how different types of businesses could be affected.
What is MTD?
MTD is a UK government initiative to digitalise and simplify the tax filing system. It involves keeping digital records and using compatible software, such as Sage, QuickBooks or Xero, to submit tax returns to HMRC.
The aim is to improve efficiency, reduce errors, and bring tax administration into the digital age. While the vision of a fully digital tax system has been in place for several years, its implementation has been phased to allow businesses time to adapt.
How MTD Will Be Implemented
The implementation of MTD is being introduced in carefully structured stages. Since April 2022, all VAT-registered businesses, including those below the VAT threshold, have been required to keep digital records and file their VAT returns using MTD-compliant software. MTD was a significant development, especially for smaller businesses that may have previously relied on spreadsheets or paper records.
The next stage, MTD for Income Tax Self-Assessment (MTD for ITSA), will begin in April 2026. From that date, self-employed individuals and landlords whose combined gross business and property income exceeds £50,000 will need to comply with MTD rules.
Under MTD, instead of filing a single return each year, taxpayers will be required to submit four quarterly updates summarising their income and expenses, followed by a Final Declaration, which will need to be submitted digitally. This increases the frequency of reporting and places greater emphasis on maintaining real-time, accurate financial digital records throughout the year.
What Could MTD for ITSA Mean for Your Business?
The implications of MTD for ITSA will vary depending on the nature and size of your business. From April 2026, MTD for ITSA will apply to Self‑employed individuals and landlords with combined annual gross business and/or property income over £50,000.
One year later, in April 2027, the threshold will be lowered to include those earning over £30,000. Followed by those with gross earnings over £20,000 being mandated from April 2028.
Exemptions include:
- Income below £20,000
- Digital exclusion (age, disability, or lack of internet access)
- Religious objections to using electronic records
- Absence of a National Insurance number
- Qualifying care receipts (such as foster care)
For non-residents, those completing the SA109 section will not be required to join before 2027, under a temporary measure announced at the Spring Statement.
The government has yet to confirm when MTD will be extended to general partnerships and individuals below the £20,000 threshold. However, it is expected that further rollouts will be announced in due course.
For self-employed individuals and landlords currently preparing annual returns using spreadsheets or manual records, the transition to digital record-keeping will represent a significant operational change. These individuals will need to ensure that their records are kept digitally and use MTD-compliant software to submit. They will also need to adapt to the new quarterly reporting model.
Small businesses that are already VAT-registered may have some experience with MTD, but they should still review their current systems to ensure they are fully compliant with future phases.
Many larger businesses already use digital software, but the expanded requirements of MTD, particularly for income tax, may still necessitate adjustments to their processes and workflows.
Planning Ahead
It is important to note that MTD compliance isn’t just about software. It’s about maintaining complete and accurate digital records throughout the year, ensuring timely submissions, and keeping up with changes in tax law and reporting standards. This can place additional pressure on business owners who are already stretched thin with day-to-day operations.
At Bevan Buckland, we’re here to guide you through this transition. Our preferred software is Xero. If you opt for this software, our team can help you set it up, offer training for your team, review the return quarterly, or we can do it all for you. Whichever you choose, our experts are ready to support you every step of the way.
Please get in touch by calling us on 01792 410100 or emailing taxteam@bevanbuckland.co.uk to discuss how we can assist you in preparing for MTD and streamlining your accounting.
