As of April 6, 2026, the UK government’s Making Tax Digital (MTD) initiative will extend to Income Tax Self Assessment (ITSA), marking a significant shift in how self-employed individuals and landlords manage and report their taxes. This change aims to modernize the tax system, making it more efficient and easier for taxpayers to get their tax right.
Understanding MTD for Income Tax
MTD for Income Tax requires affected taxpayers to maintain digital records of their income and expenses and to submit updates to HMRC quarterly using compatible software. The initiative is being rolled out in phases:
- From April 2026: Self-employed individuals and landlords with annual income over £50,000 will need to comply.
- From April 2027: The threshold lowers to include those with income over £30,000.
- By the end of this parliament: It’s anticipated that individuals with income over £20,000 will be required to comply.
Key Requirements
To comply with MTD for Income Tax, taxpayers must:
- Maintain Digital Records: Keep digital records of all business income and expenses using compatible software.
- Quarterly Submissions: Submit quarterly updates of income and expenses to HMRC.
- End-of-Period Statement: Submit a final declaration after the end of the tax year, including any accounting adjustments and claims for reliefs or allowances.
Preparing for the Transition
As an accountancy practice, it’s crucial to guide your clients through this transition:
- Identify Affected Clients: Review your client base to determine who will be impacted by the upcoming changes based on their income levels.
- Educate and Inform: Communicate the new requirements to your clients, emphasizing the importance of timely compliance to avoid potential penalties.
- Recommend Suitable Software: Assist clients in selecting HMRC-approved software that aligns with their business needs and ensures seamless digital record-keeping and submissions.
- Offer Training and Support: Provide training sessions to familiarize clients with new digital tools and processes, ensuring they feel confident in managing their tax affairs digitally.
- Monitor Compliance: Regularly review clients’ digital records and submissions to ensure accuracy and compliance with HMRC’s requirements.
Conclusion
The introduction of MTD for Income Tax represents a significant change in the UK’s tax administration. By proactively preparing and supporting your clients through this transition, your accountancy practice can ensure they remain compliant and adapt smoothly to the digitalization of tax processes.