MTD for Income Tax: What You Need to Know

MTD for Income Tax: What You Need to Know

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a UK government initiative designed to modernise the tax system. The aim is to improve efficiency, accuracy, and ease of compliance for taxpayers by requiring digital record-keeping and electronic submissions.

Who Will Be Affected and When?

MTD ITSA will be implemented in phases:

• From 6 April 2026: Sole traders and landlords with a total business or property income exceeding £50,000 per year must comply.

• From 6 April 2027: The threshold will be lowered to include those earning over £30,000.

• From 6 April 2028: The threshold will further reduce to include those earning over £20,000.

It is important to note that these income thresholds apply to total gross income, not profit, and encompass combined income from all relevant sources. Partnerships will be required to join at a later stage, with further details to follow.

Key Changes Under MTD ITSA

1. Digital Record-Keeping Taxpayers will need to maintain digital records of their business income and expenses using MTD-compatible software.

2. Quarterly Updates Instead of the traditional annual Self Assessment tax return, taxpayers will need to submit quarterly summaries of their income and expenses to HMRC. The deadlines for these submissions will be:

   • 7th August

   • 7th November

   • 7th February

   • 7th May

3. End-of-Period Statement (EOPS) At the end of the tax year, an EOPS must be submitted to finalise business income and allow for necessary adjustments.

4. Final Declaration A final declaration will replace the traditional Self Assessment tax return. This must be submitted by 31 January following the tax year-end, confirming all income, expenses, and allowances.

How Will MTD ITSA Affect You?

If you are a sole trader or landlord within the specified income thresholds, you will need to:

• Transition to Digital Record-Keeping If you currently use manual records, you must adopt MTD-compatible accounting software or bridging software to meet digital reporting requirements.

• Submit Quarterly Reports Instead of an annual tax return, you will need to report income and expenses every quarter. This ensures more regular updates on tax liabilities and better financial planning.

• Ensure Compliance to Avoid Penalties Missing submission deadlines or failing to comply with MTD ITSA requirements may result in penalties, so it is crucial to remain informed and organised.

Preparing for MTD ITSA

To prepare for MTD ITSA:

• Assess Your Current Systems: Determine if your current accounting processes meet MTD requirements. If you are still using non-digital methods, start considering digital alternatives.

• Choose the Right Software: Select MTD-compatible accounting software that best suits your business needs.

• Stay Informed: Keep up to date with HMRC announcements to ensure you remain compliant with evolving regulations.

By understanding these changes and preparing accordingly, you can ensure a smooth transition to MTD ITSA while benefiting from a more streamlined and efficient tax system.

Need Help with MTD ITSA?

If you're feeling unsure about how MTD ITSA will affect you or need assistance in making the transition, Baldwin's Accountancy Services are here to help. We can guide you through the process, ensure compliance, and help you find the best digital solutions for your business. Get in touch with us today for expert support and advice!

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