The world of tax can sometimes feel like a labyrinth, and with changes on the horizon, it's natural to feel a bit daunted. But don't worry, here at Tax City UK, we're here to shine a light on one of the most significant upcoming shifts: Making Tax Digital for Income Tax Self Assessment (MTD for ITSA).
This isn't about making things harder; it's about modernising how we report income and expenses to HMRC, aiming for greater accuracy and efficiency. Let's break down what MTD for ITSA means for you in simple terms.
What is MTD for ITSA?
In a nutshell, MTD for ITSA is HMRC's initiative to move income tax reporting into the digital age. Currently, many self-employed individuals and landlords file one annual Self Assessment tax return. MTD for ITSA will replace this with a more frequent, digital reporting system.
The core idea is to encourage digital record-keeping and regular updates to HMRC throughout the tax year, rather than a single annual submission. This means:
- Digital Record Keeping: You'll need to keep digital records of your income and expenses using MTD-compatible software. Say goodbye to piles of paper receipts!
- Quarterly Updates: Instead of one yearly return, you'll submit summaries of your income and expenses to HMRC every three months. These aren't full tax returns, but snapshots of your financial activity.
- End of Period Statement (EOPS) & Final Declaration: At the end of the tax year, you'll submit a final declaration to confirm your annual income and tax obligations, drawing on the data from your quarterly updates.
Will Be Affected, and When?
MTD for ITSA will be phased in, so not everyone will be impacted at once. Here's a quick overview of the current timeline:
- From April 2026: If your gross income from self-employment and/or property exceeds £50,000 annually, you'll be required to comply with MTD for ITSA.
- From April 2027: The threshold lowers to those with gross income between £30,000 and £50,000 annually.
- From April 2028: Those with gross income between £20,000 and £30,000 annually will also come into scope.
It's important to note that these thresholds refer to your combined gross income from self-employment and property. Income from other sources like employment, pensions, or dividends won't count towards these thresholds for MTD for ITSA purposes.
Why is This Happening? And What are the Benefits?
HMRC's goal with MTD is to reduce errors, make tax simpler for taxpayers, and improve the accuracy of tax collected. While it might seem like a big change, there are real benefits:
- Better Financial Overview: Regular digital record-keeping means you'll have a much clearer, real-time picture of your business finances and estimated tax liability throughout the year. This can help with cash flow management and more informed business decisions.
- Fewer Errors: Digital systems are designed to reduce manual input errors, leading to more accurate reporting. Some software even offers prompts and feedback to help you identify potential mistakes.
- Reduced End-of-Year Rush: By spreading the reporting throughout the year, the infamous last-minute scramble to complete your Self Assessment might become a thing of the past!
- Tailored Support (with the right partner!): With regular updates, HMRC may be able to offer more tailored support and pre-populate certain information, simplifying the final declaration process.
Feeling a Little Apprehensive? You're Not Alone!
We understand that any change to your tax obligations can feel overwhelming. Many self-employed individuals, UK landlords and non resident landlords are in the same boat, wondering how this will impact their time and processes. The thought of new software and more frequent reporting might seem daunting.
But here's the reassuring part: you don't have to navigate this alone.
How Tax City UK Can Help You Prepare for MTD for ITSA
At Tax City, we specialise in helping individuals and businesses manage their tax affairs with confidence, and preparing for MTD for ITSA is no exception. We can take the stress out of this transition by offering:
- Expert Guidance: We'll assess your situation, explain exactly when and how MTD for ITSA will affect you, and clarify all your obligations.
- Software Selection and Setup: We can help you choose the right MTD-compatible software for your needs and get it set up correctly, ensuring your digital records are in order from day one.
- Ongoing Support and Submissions: We can manage your quarterly updates and your final declaration on your behalf, ensuring accuracy and timely submission to HMRC.
- Training and Handholding: If you prefer to be more hands-on, we can provide training on using the software and understanding the new processes, empowering you to stay compliant.
The shift to MTD for ITSA is an opportunity to streamline your financial management and gain greater insight into your business. Don't let it become a source of anxiety.
Ready to get prepared for MTD for ITSA with confidence? Get in touch with us today or register* for our services and we’ll guide you through every step of the way.
*Registration to our client portal is free and doesn't cost you anything.
