Making Tax Digital in a nutshell

Making Tax Digital (MTD) is a government initiative to digitise the way businesses manage tax. MTD for VAT is already in place, with all VAT-registered businesses now required to keep digital records and submit their VAT returns using HMRC-recognised software, such as Xero.

This next stage is known as Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).

The next stage: MTD for ITSA

MTD for ITSA applies to sole traders and landlords with an annual income above £50,000 from April 2026. Sole traders and landlords with an annual income above £30,000 will follow in April 2027.

Requirements for sole traders and landlords within these thresholds are as follows:

• MTD software: Individuals need to use compatible, HMRC-recognised MTD software to keep digital records and file MTD for ITSA returns.
• Maintain digital records: those affected will be required by law to maintain digital records.
• Quarterly reporting: Individuals will be required to send HMRC quarterly summary updates of their business income and expenditure, as well as a Final Declaration that includes all other taxable income by 31 January every year.

Timeline:

• April 2019: VAT-registered businesses with turnover above the registration threshold (previously £85,000, now £90,000) must retain digital records and submit their VAT returns to HMRC using 'functional compatible software' such as Xero.
• April 2021: 'Digital links' between software programs, applications or products must be in place for all VAT-registered businesses.
• April 2022: VAT-registered businesses must retain digital records and submit their VAT returns to HMRC using 'functional compatible software' such as Xero regardless of turnover.
• April 2026: Sole traders and landlords with turnover above £50,000 must submit quarterly updates, as well as annual submissions, to HMRC.
• April 2027: Sole traders and landlords with turnover above £30,000 must submit quarterly updates, as well as annual submissions, to HMRC.
• TBC: The ITSA deadline for partnerships and those earning below £30,000 annually is yet to be confirmed. The same is true for MTD for corporation tax. We'll report back as soon as we have an update.