Making Tax Digital is already a reality for VAT-registered businesses, with the next phase of rollout looming on the horizon for self-employed individuals and landlords who submit Self Assessment tax returns. Its replacement, MTD Income Tax Self Assessment (ITSA for short), is expected to launch in April 2026.

It was originally due to come into effect in 2024, but rollout has been extended by 2 years, so you have time to prepare! We’ll look at what MTD ITSA is and what it means for you.

What is Making Tax Digital (MTD)?

In a nutshell, MTD is a tax administration strategy brought in by the government to make tax more efficient. With this change, individuals and businesses will be required to:

• Keep digital records
• Use accounting software which complies with Making Tax Digital
• Submit updates every quarter, which brings the tax system much closer to real-time. Once submitted you’ll see an estimate of your tax bill so you have a much better idea of how much tax you need to pay.

The first stage, MTD for VAT, has already rolled out – with all VAT-registered businesses now keeping digital records, as well as using MTD software to send their VAT returns.

What are the advantages of MTD?

One of the main purposes of Making Tax Digital is to help individuals and businesses get their taxes right. Businesses across the UK lose out on millions of pounds because completing confusing tax return forms means there’s a high chance of making mistakes. The move over to digital record keeping sets out to help them:

• Keep records more accurately, and reduce the risk of errors
• See (and therefore manage) their cash flow more easily
• Monitor how much tax they owe, so they can put the right amount to one side
• Know their financial position on a more frequent basis, so they can make better business decisions
• Spot any mistakes more quickly
• Store receipts more easily by snapping a quick photo, so they can claim tax relief on any allowable expenses

What is Making Tax Digital for Income Tax Self Assessment?

MTD ITSA is the forthcoming phase of the Making Tax Digital schedule, which will take over the current Self Assessment system. To comply, you’ll keep digital records using software that works with Making Tax Digital for Income Tax. The software must allow you to:

• Create digital records for all of your business transactions
• Send quarterly updates of your business’ income and expenses
• Confirm your period-end statements

 
Once MTD ITSA is in place, you’ll need to submit quarterly statements, an EOPS (End of Period Statement), and a Final Declaration (which replaces the current Self Assessment tax return).

You can find more out about MTD-compatible software and how to submit quarterly updates on the GOV website.

When will MTD ITSA start?

MTD for Income Tax Self Assessment will affect the way millions of individuals and businesses do their taxes, but in the early stages it depends on whether self-employed individuals and landlords meet the registration threshold:

• An annual turnover of more than £50,000 from 6th April 2026
• An annual turnover of more than £30,000 from April 2027

Your turnover (also known as gross income) is the total before any expenses or taxes are deducted. If you’re both a landlord and a sole trader, it’ll apply to the income you make from both.

If you find yourself below this threshold, you can continue to send Self Assessment tax returns as normal if you choose to, until any other changes are made.

Some businesses are already partaking in the new changes, and you can check if you’re able to volunteer through your software provider.

What about partnerships?

At the moment, there is no confirmed date for partnerships and MTD ITSA, but it’s expected that they will eventually need to report their finances in this way.

Is anyone exempt from MTD ITSA?

You can apply for an exemption against using Making Tax Digital for Income Tax if:

• Due to your age, disability, or location, it’s not practical to keep digital records or submit them
• Your beliefs are incompatible with keeping electronic communications or keeping electronic records due to being a practicing member of a religious society

How do I prepare myself for MTD ITSA?

There are some steps you can take now to help you prepare.

Check if you need to register

You might not need to register for MTD rules straight away, so it’s well worth taking a moment to figure out if MTD ITSA applies to you, or is likely to once the registration period rolls around.

Check the total amount of income you receive as a sole trader (adding together the total turnover if you have multiple sole trader businesses) or money you earn as a landlord. If that total exceeds £50,000 then you’ll need to register for MTD from April 2026. The registration threshold reduces to £30,000 from April 2027.

Adjust your accounting periods if you have more than one business

To make submitting your quarterly updates more efficient, ensure your accounting periods align so you can do it all at once. This can be trickier than it sounds, so discuss the best way to do this with your accountant!

Go digital as soon as possible

It’s much better to start now than be bogged down with heaps of admin! Look for cloud accounting software (like our very own Pandle!) that’s fully compliant with Making Tax Digital.

In the meantime, cloud-based software allows you to automate a lot of your bookkeeping processes, so it will make your life easier. If you have an accountant, chat with them about the software they’d recommend and what they’re going to do to help you through this process – you won’t be in this alone!

 
Need an accountant to prep you for Making Tax Digital? We’ve got you covered! Call our expert team on 020 3355 4047 or get an instant quote online.