Designed to modernise the tax system, MTD for Income Tax Self-Assessment (MTD for ITSA) aims to streamline reporting, reduce errors, and ensure a more efficient tax process. Here’s everything you need to know about Making Tax Digital for Income Tax.
What is Making Tax Digital for Income Tax?
MTD for ITSA is a government initiative requiring self-employed individuals and landlords with a combined annual business or/and property income above £50,000 to keep digital records and submit quarterly updates to HM Revenue & Customs (HMRC) using compatible software.
The initiative will be extended to those with income over £30,000 from April 2027 and as at the Autumn budget 2024 the government announced that MTD IT will be extended to individuals with an annual turnover of £20,000. This extension is expected to come into effect before the end of the current parliament. General partnerships will be included in future phases.
It should be noted that, in line with all other HMRC tax compliance matters, penalties will be levied for non-submission of these reports. It is therefore very important that we are on top of these changes to avoid unnecessary charges.
Key Features of MTD for ITSA
- Digital Record-Keeping – Businesses and landlords will need to maintain digital accounting records. Maintaining paper records will no longer meet legislative requirements.
- Quarterly Submissions – Instead of the annual Self-Assessment tax return, users will submit quarterly updates to HMRC. The quarterly submissions are intended to be a disclosure of income and expenditure. Separate quarterly updates will required for each business. For example, an individual who has one self-employment and also has a UK property business will need to submit 8 quarterly updates a year. We are well placed to assist with this and from these quarterly reports we can put together the year-end Return.
- Year end Return – A final year end return is required, and tax and accounting adjustments may be made then.
- Final Declaration – A final declaration (the old Tax Return) will confirm all other income sources, adjustments and deductions.
What are the benefits of Making Tax Digital for ITSA
- Reduced Errors – Digital record-keeping minimises mistakes caused by manual calculations.
- Real-Time Tax Overview – Frequent updates may help you better manage your tax liabilities.
- Increased Efficiency – Automated processes reduce administrative burdens and streamline tax filing.
How to Prepare for MTD for ITSA
Remember this is about making life simpler and quicker therefore it is important to make the following changes:
- Clean account – set up a clean business account for your sole trade and rental business. It is far simpler with a clean account to ensure that the only income being received and expenses being incurred are business related.
- Bank feed – Set up a bank feed so that we can pull information straight from your bank account. We will be able to upload the information direct to your Xero account which we will use to report your information to HMRC. We will provide this account in order to prepare your information for submission to HMRC. We will use this account information to let you know what your quarterly finances are looking like.
- Register for MTD – This is the biggest change to income tax for many years. Our intention is to join the HMRC testing from April 2025. We would like volunteers to join us and for us to register you for quarterly reporting from April 2025.
- Watch our video – last year we held a webinar on the changes. This is now up on our website if you would like to listen to the key points and hear questions from our people affected by the changes.
Making Tax Digital for Income Tax represents a significant shift in tax reporting, aiming for greater efficiency and accuracy. By preparing early and adopting digital record-keeping, businesses and landlords can ensure compliance while benefiting from a streamlined process. With the rollout starting in 2026, now is the time to get ready for the future of tax reporting.
To discuss the changes further and how to join the scheme from April 2025 please contact Diane Nettleton on 01633 653167 or diane.nettleton@kilsbywilliams.com. Alternatively, please contact your usual advisor on 01633 810081 or email info@kilsbywilliams.com
