What Is MTD ITSA, and How Will It Affect Self-Employed Individuals?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a major change in the way self-employed individuals and landlords in the UK manage and report their taxes. It’s part of the government’s initiative to modernize the tax system, making it more efficient.

If you’re self-employed, this change will likely affect how you record your income and submit your tax returns. Let’s explore what MTD ITSA is, how it will impact you, and what steps you need to take to ensure compliance.

What Is MTD ITSA?

MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment. It’s an extension of the government’s Making Tax Digital (MTD) initiative, which already applies to VAT. MTD ITSA focuses on streamlining the process of reporting income tax for:

  • Self-employed individuals.
  • Landlords with annual rental income.

Under MTD ITSA, you’ll need to:

1.Keep digital records of your income and expenses.

2.Submit quarterly updates to HMRC through MTD-compatible software.

3.File an Annual Declaration similar to the current tax return.

Who Does MTD ITSA Apply To?

MTD ITSA will apply to:

  • Self-employed individuals and landlords with an annual business or property income exceeding £50,000starting from April 2026.
  • Those with income between £30,000 and £50,000starting from April 2027.

HMRC is still consulting on how MTD ITSA will apply to individuals earning below £30,000 annually, but it’s important to stay informed about future changes.

How Will MTD ITSA Affect You?

1.Digital Record-Keeping

If you’re used to keeping paper records or spreadsheets, you’ll need to switch to MTD-compatible software to maintain your records digitally.

2.Quarterly Reporting

Instead of filing a single Self Assessment tax return once a year, you’ll submit four quarterly updates to HMRC. These updates provide a snapshot of your income and expenses throughout the year.

3.Annual Return

You will still need to file an annual self assessment to include other income and additional information.

4.Increased Transparency

With regular updates, you’ll have a clearer picture of your tax obligations throughout the year, reducing the risk of surprises at year-end.

What Do You Need to Do to Prepare for MTD ITSA?

1.Determine If MTD ITSA Applies to You

Check your annual income from self-employment or property to see when you’ll need to comply with MTD ITSA.

2.Choose MTD-Compatible Software

Popular options like QuickBooks, Xero, and Free Agent are all MTD-compatible. These tools will help you maintain digital records and submit quarterly updates seamlessly.

3.Organize Your Records

Ensure your income and expense records are accurate and up to date. If you’ve been relying on paper receipts, it’s time to transition to a digital system.

4.Seek Professional Advice

Navigating MTD ITSA can be complex, especially if you’re new to digital accounting. A trusted accountant can guide you through the transition and ensure compliance.

How ANB Bookkeeping Can Help

At ANB Bookkeeping, we understand the challenges that MTD ITSA presents for self-employed individuals and landlords. Our goal is to make the transition as smooth and stress-free as possible.

Here’s how we can support you:

1.Expert Guidance

We’ll help you understand how MTD ITSA affects your specific situation and create a plan to ensure compliance.

2.Software Setup

Choosing and setting up MTD-compatible software can be overwhelming. We’ll recommend the best option for your needs, handle the setup.

3.Quarterly Reporting Support

We’ll assist with preparing and submitting your quarterly updates to HMRC, ensuring accuracy and timeliness.

4.Annual Self Assessment

We will manage the Annual Self Assessment for you.

Get Ready for MTD ITSA with ANB Bookkeeping

Making Tax Digital for Income Tax Self Assessment is a significant change, but you don’t have to face it alone. At ANB Bookkeeping, we can  help self-employed individuals and landlords transition to MTD seamlessly.

MTD ITSA FAQ: Everything You Need to Know

  1. What is MTD ITSA?

MTD ITSA (Making Tax Digital for Income Tax Self Assessment) is part of HMRC’s initiative to modernize the tax system. It requires self-employed individuals and landlords to keep digital records of their income and expenses and submit quarterly updates to HMRC using MTD-compatible software.

  1. Who does MTD ITSA apply to?

MTD ITSA applies to:

  • Self-employed individuals and landlords with annual business or property income exceeding £50,000from April 2026.
  • Those earning between £30,000 and £50,000will need to comply from April 2027.

Future plans for individuals earning below £30,000 are still under consultation.

  1. When does MTD ITSA start?
  • April 2026: For individuals earning over £50,000 annually.
  • April 2027: For individuals earning between £30,000 and £50,000 annually.
  1. What records do I need to keep digitally?

You’ll need to maintain digital records of:

  • Income
  • Expenses
  • Bank transactions related to your business or property

These records must be stored in MTD-compatible software and submitted to HMRC via quarterly updates.

  1. How often do I need to report under MTD ITSA?

You’ll need to submit:

  • Four quarterly updates summarizing your income and expenses throughout the year.
  • A Final Declaration to declare all your income and confirm your tax liability.
  1. What software do I need for MTD ITSA?

You’ll need MTD-compatible software to manage your records and submit updates. Popular options include:

  • QuickBooks
  • Xero
  • Free Agent

We can help you choose the best software for your needs and set it up for you.

  1. What happens if I don’t comply with MTD ITSA?

Failure to comply with MTD ITSA requirements may result in penalties from HMRC. These could include fines for late submissions or non-compliance with digital record-keeping rules.

  1. Do I still need to file a Self Assessment tax return?

Yes, you will still need to file an annual statement, but by keeping on track of your income and expenditure throughout the year, it should be a more straight forward process.

  1. How can ANB Bookkeeping help me with MTD ITSA?

We provide:

  •  Advice tailored to your situation.
  • Setup  for MTD-compatible software.
  • Preparation of  quarterly updates and annual self assessment.
  1. What should I do now to prepare for MTD ITSA?
  • Determine when MTD ITSA will apply to you based on your income.
  • Choose and set up MTD-compatible software.
  • Organize your records to ensure accuracy.
  • Seek professional advice to streamline the transition.

Contact us today for a free consultation and let’s get your business ready for the future of tax reporting.