Making Tax Digital for Income Tax Self Assessment

Making Tax Digital for Income Tax Self Assessment: A Guide for Sole Traders and Landlords

With the rollout of Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) approaching, it’s crucial for sole traders and landlords to get prepared. MTD is set to transform the way income tax is managed in the UK, impacting how records are kept and how tax information is submitted. If you’re self-employed or a landlord, understanding these changes will help you stay compliant and avoid unnecessary penalties.

At AFS Accountancy Services, we’re here to guide you through the essentials of Making Tax Digital for ITSA, so you know exactly what to expect and how to prepare, as always, if you require any help contact me to see how we can help you.

What is Making Tax Digital for Income Tax Self Assessment (MTD for ITSA)?

Making Tax Digital for ITSA is part of HMRC’s wider MTD initiative, which aims to digitise tax reporting for individuals and businesses. MTD for ITSA will require eligible taxpayers, such as sole traders and landlords with an annual income over £10,000, to keep digital records of their income and expenses. They will also need to submit quarterly updates to HMRC using compatible software.

This initiative is designed to reduce errors and simplify the tax process by moving from an annual tax return to a more regular, digital reporting system. The aim is to make it easier for taxpayers to understand their financial position throughout the year, rather than relying on a single end-of-year tax return.

Who Will MTD for ITSA Affect?

MTD for ITSA is relevant to:

• Sole traders with a turnover exceeding £10,000 per year
• Landlords with rental income above £10,000 annually
• Individuals who are both sole traders and landlords with combined income over £10,000

If your income falls below this threshold, MTD for ITSA won’t apply to you, and you can continue using the existing tax filing system. However, it’s important to note that once your income crosses the £10,000 mark, you will be required to comply with MTD for ITSA.

Key Dates for MTD for ITSA

The mandatory start date for MTD for ITSA has seen some changes, with the most recent update setting it to April 2026. This gives eligible taxpayers more time to adjust to the new system and implement the necessary software and processes.

While this might seem far off, getting organised now can prevent a last-minute rush to meet compliance. Starting early gives you time to test the systems, learn the software, and ensure your processes are running smoothly before the mandatory start date.

The Core Requirements of MTD for ITSA

If you’re self-employed or a landlord, here’s what MTD for ITSA will require of you:

1. Keeping Digital Records

• You’ll need to maintain digital records of all income and expenses using MTD-compliant software. Paper records will no longer meet HMRC’s requirements under MTD.
• Digital records should be updated regularly, so your financial information is current and accurate.

1. Submitting Quarterly Updates

• Every three months, you’ll need to submit a summary of your income and expenses to HMRC. This means you’ll have four quarterly submissions per tax year.
• These submissions provide HMRC with real-time data, which can help you understand how much tax you’re likely to owe.

1. End-of-Period Statement (EOPS)

• At the end of each tax year, you’ll need to file an End-of-Period Statement. This acts as a final reconciliation for the year, ensuring all the quarterly data is accurate and complete.
• Your EOPS is where you’ll make any necessary adjustments for allowances, reliefs, and other applicable deductions.

1. Final Declaration

• Once you submit your EOPS, you’ll need to make a Final Declaration, which replaces the traditional Self Assessment tax return. This final step confirms your income and tax for the year.

1. Using MTD-Compliant Software

• Only certain software will be approved by HMRC for MTD submissions. These platforms must support the digital record-keeping and quarterly reporting requirements of MTD.
• Many major software providers are already MTD-compatible, and as the start date approaches, more options are likely to become available.

Preparing for MTD for ITSA: Steps for Sole Traders and Landlords

Transitioning to MTD for ITSA doesn’t have to be overwhelming if you take it step by step. Here’s how you can start preparing:

1. Review Your Record-Keeping Practices

• Start by reviewing how you currently record your income and expenses. If you’re using paper records or spreadsheets, consider switching to digital accounting software.
• By moving to a digital system now, you’ll have time to get comfortable with it and streamline your financial record-keeping.

2. Choose MTD-Compliant Software

• Choosing the right software is essential for meeting MTD requirements. Look for a platform that is user-friendly and compatible with your specific needs as a sole trader or landlord.
• Many accounting software providers offer demos or trial periods, allowing you to explore features and decide on the best fit for your business.

3. Set Up Quarterly Reporting Processes

• MTD will require you to submit updates every three months, so it’s important to develop a routine for recording income and expenses on a regular basis.
• Set up reminders or designate a specific time each week or month for updating your records. By staying on top of it, you can avoid any last-minute rush.

4. Consult with an Accountant or Tax Adviser

• MTD for ITSA introduces a more structured way of managing your taxes, and it can be helpful to seek professional guidance. An accountant can help you understand which deductions and reliefs apply to your business and ensure your records are accurate.
• At AFS Accountancy Services, we specialise in helping sole traders and landlords navigate these kinds of changes. We can assist with setting up your digital record-keeping, choosing software, and preparing you for the new reporting requirements.

5. Stay Informed of Further Updates

• HMRC occasionally releases additional guidance or updates to MTD requirements, so staying informed is essential.
• Our blog and resources at AFS Accountancy Services will provide updates as we get closer to April 2026, ensuring you have the latest information.

The Benefits of MTD for ITSA

While MTD for ITSA introduces new responsibilities, it also brings advantages that can benefit your business:

• Improved Financial Clarity: Regular digital updates help you monitor your finances in real-time, giving you a better understanding of your tax obligations throughout the year.
• Reduced Errors: Digital record-keeping and quarterly submissions can reduce the likelihood of errors in your tax reporting, potentially lowering your risk of penalties.
• Time Savings: Using MTD-compliant software allows you to streamline your financial processes and save time on end-of-year tax preparation.
• Enhanced Tax Planning: With quarterly data updates, you’ll have a clearer picture of your tax liability, making it easier to plan and budget for your tax bill.

Making the Move to MTD for ITSA with AFS Accountancy Services

The shift to Making Tax Digital for Income Tax Self Assessment is a significant change for sole traders and landlords, but it’s one that can ultimately help you manage your tax obligations more effectively. At AFS Accountancy Services, we’re here to support businesses in Dover, Folkestone, Deal, and beyond with personalised advice and guidance on adapting to MTD requirements.

Whether you need help setting up digital record-keeping, selecting the right software, or understanding the quarterly submissions process, our team is ready to assist. Reach out to us today to start preparing for MTD for ITSA, and let’s make the transition as seamless as possible.