Chapter 1

Making Tax Digital in a nutshell

We share the timeline for MTD for ITSA, including who will be affected.

MTD for ITSA

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 £85,000 VAT registration threshold 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 with turnover below £85,000 must retain digital records and submit their VAT returns to HMRC using 'functional compatible software' such as Xero.
  • 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.