A Guide to Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA): Is Your Business Ready for Digital Transformation?

Tax systems in the UK are undergoing a digital revolution and Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is leading this charge. This is a big change for sole traders and landlords. MTD for ITSA is designed to reduce mistakes, save time, and simplify compliance with digital record-keeping and regular updates.

In this blog, we’ll explain MTD for ITSA, when it’s happening, and why it’s important for you.

Who Will Get Affected by MTD for ITSA?

The implementation of MTD for ITSA begins in April 2026 for:

Sole traders earning over £50,000 annually.
Landlords with rental revenue of more than £50,000 each year.

By April 2027, the threshold will be reduced to £30,000, bringing more people under its scope. For those with incomes below this, voluntary sign-ups are available for a head start.

Looking ahead, the government has hinted that the threshold could drop to £20,000, but there’s no set timeline yet.

What Do You Need to Do Under MTD for ITSA?

If MTD for ITSA applies to you, here’s what you’ll need to do:

Keep Digital Records: Get rid of paper receipts and spreadsheets. Use compatible software to log income and expenses.
Quarterly Updates: Submit digital updates to HMRC every three months, offering a real-time snapshot of your finances.
HMRC-Approved Software: Use software that meets HMRC’s standards for submissions.
End-of-Year Statement: Reconcile and submit a final declaration at the year’s end.

Why Does MTD for ITSA Matter?

Managing taxes can be difficult, but MTD for ITSA is here to simplify the process. Here’s how:

Closing the Tax Gap: Did you know errors in self-assessment filings account for around £5 billion in unpaid taxes each year? By using digital tools, MTD for ITSA aims to reduce these errors and ensure everyone pays the correct amount.
Saving Time and Reducing Stress: Digital tools automate routine tasks, so you can spend less time on admin and more on running your business.
Avoiding the Year-End Panic: Quarterly submissions ensure your records are up-to-date, easing the final filing.

What About the Costs?

Upfront Costs: You might need to spend around £320 to upgrade your software and equipment.
Ongoing Costs: Software subscriptions cost about £110 annually, though costs might be lower for those already using digital tools for VAT.
Support from HMRC: HMRC partners with software developers to provide affordable solutions and offers webinars, helplines, and guides.

When Does MTD for ITSA Start?

April 2026: Mandatory for incomes above £50,000.
April 2027: Mandatory for incomes between £30,000 and £50,000.
Future Plans: Likely to include those earning over £20,000.

If you fall outside these thresholds, consider signing up voluntarily. It’s a great way to familiarise yourself with the system before it becomes compulsory.

What’s the Bigger Picture?

MTD for ITSA is the next step in the digital transformation of tax, building on the success of MTD for VAT, which was introduced in 2019. Many businesses using MTD for VAT have already seen the benefits—fewer mistakes, smoother filing processes, and improved financial management. MTD for ITSA promises to deliver the same advantages, making tax compliance easier and more efficient.

But it’s not just about meeting tax requirements. Going digital can simplify your financial management, uncover new ways to save money, and help you make smarter business decisions.

For more details, visit the HMRC website.

Conclusion: A Digital Tax Future Awaits

Making Tax Digital for Income Tax is more than just a requirement; it is an opportunity to streamline your tax procedure and focus on what is actually important. While the transition may seem difficult at first, the advantages outweigh the effort.

Ready to make the switch? DataTracks can support you every step of the way. With our expertise in digital tax solutions, we will ensure a seamless transition and full compliance with HMRC’s rules.

MTD for VAT made tax filing easier. Now, MTD for ITSA is set to do the same. Don’t wait—get ahead of the curve with digital tools! Get in touch with a DataTracks expert at +44 (0) 203 608 8035 or email enquiry@datatracks.co.uk.