Making Tax Digital for Income Tax: What You Need to Know
- Styles & Associates
- 5 days ago
- 5 min read
The UK government’s Making Tax Digital (MTD) initiative is transforming how taxpayers interact with HMRC. After the rollout of MTD for VAT, the next major phase - Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is fast approaching. If you're self-employed or a landlord, it's vital to understand how this change affects you, and what you need to do to stay compliant.
What Is Making Tax Digital for Income Tax?
MTD for Income Tax is part of the government’s wider plan to digitise the UK tax system. It will require sole traders and landlords with qualifying income to:
Keep digital records of income and expenses
Use MTD-compatible software to send updates to HMRC
Submit more frequent reports - quarterly, plus an End of Period Statement and a Final Declaration (EOPS)
This replaces the traditional annual Self Assessment tax return with a more regular, digital process designed to improve accuracy and reduce errors.
Who Will Be Affected?
MTD for ITSA applies to individuals who:
Are self-employed (sole traders)
Earn rental income from UK property
Have a combined income from these sources over £50,000 (from April 2026), or over £30,000 (from April 2027), or over £20,000 (from April 2028)
Key Changes Under MTD for ITSA
Current System (Self Assessment) | Under MTD for ITSA |
One tax return per year | Quarterly updates + 2 annual filings |
Manual or spreadsheet-based records | Digital records required |
Paper returns still accepted (in some cases) | Digital-only submission required |
New Submissions Required:
Quarterly Updates – Summary of income and expenses submitted every three months.
End of Period Statement (EOPS) – Confirms accuracy of the year’s figures for each income source.
Final Declaration – A final summary of all income, replacing the current Self Assessment return.
Timeline for Implementation
April 2026: MTD for ITSA becomes mandatory for self-employed individuals and landlords with income over £50,000. Customers who have to use MTD for Income Tax from 6 April 2026 will be identified based on their 2024 to 2025 tax return (which has to be submitted by 31 January 2026)
April 2027: Extends to those with income over £30,000.
April 2028: Extends to those with income over £20,000
How to Prepare
Adapting to MTD for ITSA may feel overwhelming, especially if you're used to annual returns or manual bookkeeping. Transitioning to MTD for Income Tax doesn’t have to be daunting. Here's how you can get ready:
1. Check if You’re Affected
Add together your self-employment and rental income. If it exceeds the threshold, you’ll need to comply by the relevant date.
2. Choose MTD-Compatible Software
You are required to use HMRC-approved software to maintain digital records and submit your tax reports. Choose MTD-compatible accounting software that suits your business size and complexity. Look for features like bank feeds, expense tracking, and automatic categorisation. Popular options include Xero, QuickBooks, FreeAgent, and others. At Styles & Associates, we work with a wide range of MTD-compatible software and are certified advisors for Xero. We also support clients who use Sage, QuickBooks, and other approved platforms, ensuring they stay fully compliant with MTD requirements.
3. Keep Digital Records
Start recording income and expenses digitally.
4. Understand Your Reporting Schedule
Get familiar with quarterly deadlines and plan your bookkeeping around them. Each quarter will have a one-month window for submission.
5. Get Professional Help
Speak to an accountant or bookkeeper with MTD experience. At Styles & Associates we can help you:
Help select the right software
Ensure accurate digital record-keeping
Handle quarterly submissions and EOPS filing
Keep you compliant with MTD regulations
Benefits of MTD for Income Tax
While it’s a significant change, MTD for ITSA offers several benefits:
More accurate tax reporting
Fewer surprises at year-end
Better financial visibility throughout the year
Reduced errors due to digital processes
Common Mistakes to Avoid
Waiting too long to prepare – Start early to avoid last-minute stress. Setting it up early allows time to get familiar and migrate data without pressure.
Assuming it doesn’t apply to you – Double-check your income sources and thresholds.
Using non-compliant software – Only HMRC-approved tools can be used.
Not maintaining proper records – MTD requires accurate, ongoing record-keeping.
Managing the Transition to MTD for ITSA
Making Tax Digital for Income Tax is one of the biggest shake-ups to the UK tax system in decades. It’s designed to make tax more straightforward and less error-prone - but it requires new habits, tools, and planning.
If you’re a landlord or sole trader with qualifying income, don’t wait until the deadline approaches. Start preparing now, get the right tools in place, and speak to a qualified advisor to ensure you’re fully ready.
Get in touch with our team today to discuss your accounts and learn how Styles & Associates can support you in meeting your Making Tax Digital obligations.
Frequently Asked Questions (FAQ)
Q1: Do I need to comply with MTD if I use spreadsheets?
A: Only if your spreadsheets are linked to MTD-compatible bridging software that can submit data directly to HMRC. Manual uploads or unconnected spreadsheets are not compliant.
Q2: When exactly do I need to start complying with MTD for ITSA?
A:
April 2026 – If your self-employment and/or rental income is over £50,000.
April 2027 – If your income is over £30,000
April 2028 – If your income is over £20,000
Q3: What are the quarterly update deadlines?
A: While exact deadlines can vary, quarterly updates will typically be due one month after the end of each quarter. For example, if your first quarter ends on 5 July, the update is likely due by 5 August.
Q4: What’s the difference between EOPS and the Final Declaration?
A:
End of Period Statement (EOPS): Confirms final figures for each business income source.
Final Declaration: Confirms your total income from all sources (including employment, dividends, etc.), replacing the traditional Self Assessment return.
Q5: I have an accountant - do I still need to understand MTD?
A: Yes, it's important to understand your new responsibilities. Your accountant can handle submissions, but you’ll still need to maintain accurate digital records and ensure timely communication.
Q6: What if I miss a submission deadline?
A: HMRC is expected to introduce a points-based penalty system. Missing a deadline may result in a penalty point, and multiple points can lead to fines. Consistent compliance is key.
Q7: How do I know if my software is MTD-compatible?
A: Check the HMRC list of approved software to confirm that your chosen provider supports MTD for ITSA:
Q8: Can I opt in to MTD before I'm required to?
A: Yes. If you meet the criteria, you can voluntarily join HMRC’s pilot programme to get ahead of the curve and test your systems before the deadline.
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