Everything you need to know about MTD for ITSA: A guide for SMEs

In December 2022, HM Revenue & Customs announced that Income Tax records would be made digital from April 2026, rather than the original date of April 2024.

Although delayed, self-employed individuals and landlords with a turnover of more than £50,000 will be mandated into Making their Tax Digital for Income Tax Self-Assessment (MTD for ITSA) by April 2026.

Getting to grips with the MTD for ITSA requirements before the deadline is essential, to ensure your reports remain compliant.

What is MTD for ITSA?

MTD for ITSA means Making Tax Digital for Income Tax Self-Assessment, whereby you must:

  • Maintain digital records of your income and expenses
  • Use appropriate software to submit tax information to HMRC
  • Send summary updates of business and property income/expenses every three months to HMRC

This digital method replaces the traditional method of filing Self-Assessment Tax returns on paper or through the HMRC website.

What are the phases?

There are three phases to be aware of:

Phase 1

  • Rolls out only for those with a turnover of more than £50,000 in April 2026
  • If you are self-employed as an individual or as a landlord, and you have a turnover of £50,000 or more, then you will be the first to comply with MTD for ITSA from April 2026
  • HMRC have estimated that this will apply to over 700,000 people

Phase 2

  • Will apply to self-employed individuals with a turnover of more than £30,000
  • If you turnover £30,000 or more then you will be required to join in April 2027

Phase 3

  • For those who turnover under £30,000, there are ongoing discussions as to when MTD for ITSA will be introduced
  • Approximately 2.6 million taxpayers are thought to be in this group

If you are unsure about your turnover, it is always best to seek the advice of one of our expert team members to ensure you abide by the regulations when necessary.

Can I be exempt?

In short, yes.

If your software, to submit your data or records digitally, is not appropriate to use then you can apply for an exemption via the HMRC website.

Your exemption might be due to your age, location, or any other valid reason.

HMRC will then review your application and, if applicable, an alternative will be given.

Although the scheme has been delayed, it is still important to prepare for the change as it will eventually impact you and your business from 2026.

There are further exemptions from MTD for ITSA:

  • Non-resident companies
  • Trustees, executors and administrators
  • Foreign businesses of non-UK domiciled individuals

What else do I need to know?

Lots of changes have been made due to MTD for ITSA. These include:

  • Quarterly updates will be moved to a cumulative basis, which allows errors to be corrected rather than finalised
  • You, as a business, no longer must submit an End of Period Statement (EOPS)
  • Jointly let property landlords can now choose to only report their income, rather than their expenses too, on quarterly updates which in turn ensure simplified records

Although the repetition of reporting is to change, the timing will not with the current system of payment on accounts and balancing payment by 31 January to remain in place for the foreseeable future.

If you’d like to find out more about MTD for ITSA and how it impacts your business, please get in touch with a member of our team today.


 

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