Making Tax Digital for ITSA: A Comprehensive Overview
The transition to digital tax systems is a significant shift in the way tax records are maintained and submitted. This initiative, known as Making Tax Digital for ITSA (MTD), is not entirely new, having been implemented for VAT since 2019. The upcoming changes will extend MTD to income tax self-assessment, affecting landlords and sole traders.
Timeline and Implementation
MTD for income tax self-assessment is set to begin in April 2026. A trial run will start in April 2025, allowing voluntary participation without penalties for errors during this period. This early adoption phase is encouraged to help users familiarize themselves with the new systems and processes.
Who Will Be Affected?
Initially, MTD will impact landlords and sole traders with a combined income exceeding £50,000, based on their 2024-2025 tax returns. From 2027, this threshold will decrease to £30,000. The requirement is based on turnover, not profit, and includes both rental and sole trader income.
Objectives of Making Tax Digital
The primary goal of MTD is to close the tax gap—the difference between expected and actual tax collections. By digitizing records, the government aims to improve accuracy and compliance, particularly among smaller entities where discrepancies are more common.
Record Keeping and Submissions
Under MTD, digital record-keeping is essential. Quarterly updates will be required, detailing turnover and expenses. These submissions will be cumulative, with an end-of-year submission to finalize tax adjustments. The process is designed to streamline data entry and reduce errors by ensuring figures are entered into software only once.
Software and Support
Compatible software is crucial for MTD compliance. Popular options include Xero, Sage, QuickBooks, and Hammock for landlords. These platforms offer features like receipt scanning and bank feed integration to simplify record-keeping. Workshops and webinars will be available to assist users in selecting and using the right software.
Making Tax Digital for ITSA – Practical Tips for Transition
- Separate business and personal finances: Maintain distinct accounts to simplify record-keeping and ensure all transactions are business-related.
- Utilise receipt scanning tools: These tools reduce manual data entry and keep records organized in the cloud.
- Check HMRC Gateway login: Ensure access to your self-assessment account and update any outdated information.
Making Tax Digital for ITSA – Preparing for the Change
With the April 2026 deadline approaching, it’s advisable to start transitioning to digital systems now. This allows ample time to adapt to new processes and software, ensuring compliance when MTD becomes mandatory. Regularly setting aside time for administrative tasks will help manage the quarterly submission requirements effectively.
In summary, Making Tax Digital represents a significant change in tax administration, aiming to enhance accuracy and compliance through digital record-keeping. By preparing early and utilising available resources, affected individuals can navigate this transition smoothly.
If you would like to speak to a member of our team regarding Making Tax Digital, contact us or telephone us on 020 7870 9050.
