Making Tax Digital: Income Tax Self Assessment – Let’s Explain

The world of tax is changing, and if you’re self-employed or a landlord, it’s time to take note. HMRC’s Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is on the horizon, and while that might not sound like the most thrilling topic, getting prepared early will save you stress down the line.

In this blog, we’ll break down what MTD ITSA is, who it applies to, what changes you can expect, and—most importantly—how preparing early can make the transition much smoother.

Ready? Let’s dive in.

What is Making Tax Digital for Income Tax Self Assessment?

Making Tax Digital (MTD) is HMRC’s plan to move tax reporting into the digital age. The idea is to make tax more efficient, reduce errors, and streamline the process for individuals and businesses alike.

MTD ITSA specifically applies to self-employed individuals and landlords who earn above a certain threshold. Instead of filing one tax return at the end of the year, you’ll need to keep digital records and send updates to HMRC every quarter using compatible software.

Who Needs to Comply with MTD ITSA?

HMRC is rolling out MTD ITSA in phases:

• From April 2026, it will apply to self-employed individuals and landlords earning over £50,000 per year.

• From April 2027, it will extend to those earning over £30,000 per year.

• The Spring Budget announced, from April 2028, it will apply to those earning over £20,000 per year.

If you earn below £20,000, MTD ITSA won’t apply to you—yet. HMRC is continuing to assess how and when it will bring smaller businesses and individuals into the fold.

What Will Change Under MTD ITSA?

If you currently submit an annual Self Assessment tax return, you’ll see some key changes under MTD ITSA:

• Digital Record-Keeping: You’ll be required to keep your financial records digitally using MTD-compatible software. No more shoeboxes full of receipts!

• Quarterly Submissions: Instead of submitting one tax return per year, you’ll send updates to HMRC every three months.

• End-of-Year Submission: At the end of the tax year, you’ll submit a final declaration to confirm your income and allowances before paying any outstanding tax.

• Use of Approved Software: HMRC will only accept submissions made via compatible software—spreadsheets alone won’t be enough.

While this might sound like extra work, the goal is to make tax management easier and more transparent, allowing you to keep on top of your finances throughout the year.

Why You Should Prepare Early

MTD ITSA might not come into effect until 2026, but starting early will save you headaches later. Here’s why getting ahead of the game makes sense:

1. Avoid Last-Minute Panic

The last thing you want is to scramble to learn new software and processes when the deadline arrives. Preparing now means you’ll be comfortable with the system before it becomes mandatory.

2. Get Used to Digital Bookkeeping

If you’ve been relying on spreadsheets or even paper records, moving to digital software might take some adjustment. Starting early gives you time to find the right tools and develop good habits.

3. Ensure Your Software is Set Up Correctly

Not all accounting software is MTD-compliant. By sorting this out now, you can ensure you’re using the right platform and get familiar with how it works before you have to start filing quarterly reports.

4. Reduce the Risk of Errors

Quarterly reporting means you’ll be updating your tax records regularly rather than leaving everything to the last minute. This can help reduce errors, make tax time less stressful, and potentially prevent penalties.

5. Stay on Top of Your Finances

One of the biggest advantages of MTD ITSA is that it encourages better financial management. With regular updates, you’ll have a clearer picture of your income, expenses, and tax obligations throughout the year.

How to Get Started with MTD ITSA

If you’re wondering what you need to do to prepare, here are the key steps:

1. Choose MTD-Compatible Software

HMRC requires you to use approved software for keeping records and submitting tax returns. Popular choices include QuickBooks, Xero and FreeAgent. If you’re unsure which one is right for you, getting professional advice can help.

2. Set Up a System for Tracking Income & Expenses

Start organising your records digitally now so that when MTD ITSA kicks in, you already have a smooth system in place. This could mean linking your business bank account to accounting software or using an app to track receipts.

3. Understand Quarterly Reporting

Instead of a single annual return, you’ll be reporting your earnings every three months. Reviewing your finances regularly will help you stay on track.

4. Get Professional Support

If all of this sounds overwhelming, you’re not alone. A bookkeeper or accountant can help you transition smoothly, ensuring your records are in order and your software is set up correctly.

How We Can Help

Switching to a digital tax system might seem daunting, but we’re here to make it easy. We can assist with:

• Choosing the right MTD-compatible software and setting it up for you.

• Helping you transition to digital record-keeping so you’re ready before the deadline.

• Providing ongoing bookkeeping support to ensure compliance with MTD ITSA.

• Answering any questions you have about quarterly reporting and end-of-year submissions.

By getting ahead of MTD ITSA now, you can save yourself stress, avoid last-minute issues, and take control of your tax affairs with confidence.

Final Thoughts

Making Tax Digital for Income Tax Self Assessment is coming, and while change can feel daunting, getting prepared early will make the transition much smoother. By understanding the new requirements, adopting digital tools now, and seeking expert help if needed, you can ensure a seamless switch when the time comes. Why wait until 2026? Start putting the right systems in place now, and you’ll be ahead of the game when MTD ITSA becomes mandatory.

That’s everything you need to know about MTD ITSA – for now! Keeping up with tax changes is never the most exciting part of being self-employed, but with the right preparation, it doesn’t have to be stressful either. Here’s to a smooth transition to digital tax filing!