Making Tax Digital: what happens next?

Income Tax Self Assessment

understanding the upcoming changes 

Adjusting to a digital future for tax

If you currently submit your tax returns under the self-assessment system every year, then the way you declare your tax information is about to fundamentally change.

Making Tax Digital (MTD) is being rolled out over the coming years for all sole traders, partnership members, property landlords and unincorporated business owners. It’s part of HM Revenue and Customs’ drive to make the British tax administration a world leader in digital innovation so that it can be more effective, more efficient, and easier for taxpayers to get right.

Sole traders, unincorporated businesses and property landlords with 

total annual income of more than £50,000 will be impacted from April 2026, and those with total annual income of more than £30,000 will impacted from April 2027.

The government is expected to review the needs of those with income under £30,000 before deciding on any further mandation of MTD for ITSA. The extension of MTD for ITSA to general partnerships originally planned for April 2025 was also scrapped, with a new timeline yet to be announced.

MTD represents a major change for many individuals and organisations. Now is the time to start preparing, so that you can transition smoothly and stay compliant.

Next steps

There is no automatic switch over from Self Assessment to MTD for Income Tax, so your first step, if affected by the changes, will be to sign up for MTD for ITSA. You will need to sign up by either April 6th 2026 or April 6th 2027, depending on which income threshold you fall under.

The next step will be to choose which cloud accounting platform solution you want to work with. Many providers like Xero, Quickbooks and FreeAgent are in the process of building and testing their solutions, so software may not yet be available. But don't let this stop you from having a look, or speaking to us about which solution may suit your business best.

MTD FOR ITSA: WHAT YOU NEED TO DO

The new MTD-based system places several new requirements for those involved, starting with registration for the new scheme with HMRC. You will be required to:

  • Keep digital financial records that are linked to HMRC’s systems
  • Update HMRC on business/property income and expenditure every three months
  • Ensure your accounting year is aligned to the tax year
  • Submit documentation such as End-of-Period Statements and Final Declarations
  • Pay any taxes due from the previous tax year by 31st January the following year
HOW CLOUD ACCOUNTING CAN HELP

Using cloud accounting software is the easiest way to navigate all the challenges that MTD poses. It’s important to ensure that the software you use is MTD-compatible, or can be integrated with bridging software that can make the quarterly submissions required.

But by making the step into the cloud now, you can realise all the benefits of the software straight away, including:

  • Flexibility: access key accounting information, and send quotes and invoices, at any time from anywhere you’re connected to the Internet
  • Automation: make time-consuming and repetitive tasks automatic, such as matching payments to invoices, to speed up processes and cut out human error
  • Security: robust protection in the cloud ensures that vital, sensitive data is frequently backed up and kept as safe as possible
  • Updates: automated updates to software means you’re always running the latest version, and accessing a full range of services and functions

 

Ready to start? Talk to us

If you’d like some help in making sense of MTD for ITSA, or want to know more about adopting cloud accounting software like Xero or QuickBooks, the Inform Accounting team is happy to help. Call us on 0121 667 3882 or email hello@informaccounting.co.uk

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