The UK tax system is undergoing a transformation with the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA). Designed to modernise tax administration, MTD for ITSA aims to make it easier for self-employed individuals and landlords to manage their tax obligations efficiently.

We were live earlier this week with HMRC representatives Lenny Barry and Chris Bagguley as they explained how this initiative aligns with HMRC’s vision of a more streamlined, digital-first approach to tax compliance.

Why MTD for ITSA?

The need for MTD for ITSA arises from the desire to reduce errors, improve accuracy, and enhance the overall experience for taxpayers. The traditional method of completing an annual Self-Assessment tax return has often led to mistakes, leading to penalties and additional tax liabilities. With digital record-keeping and regular reporting, taxpayers can maintain better control over their tax affairs and reduce the likelihood of errors.

Additionally, MTD aims to provide real-time insights into tax liabilities, preventing unexpected tax bills and encouraging better financial planning. By digitising the process, HMRC also aims to reduce the administrative burden on taxpayers and streamline compliance requirements.

Key Features of MTD for ITSA

Under MTD for ITSA, self-employed individuals and landlords with an annual business or property income above £50,000 (from April 2026) and later above £30,000 (from April 2027) must:

• Maintain digital records of their income and expenses using compatible software.
• Submit quarterly updates to HMRC, ensuring real-time tracking of tax liabilities.
• Submit an End of Period Statement (EOPS) and a Final Declaration annually to confirm tax calculations.

These changes aim to provide a more structured and transparent approach to tax filing, ensuring businesses and landlords remain compliant with minimal effort.

How to Prepare for MTD for ITSA

To ensure a seamless transition, taxpayers should:

• Identify and start using HMRC-recognised MTD-compatible software.
• Maintain up-to-date digital records of income and expenses.
• Familiarise themselves with quarterly reporting requirements and deadlines.
• Consider joining the MTD pilot to gain first-hand experience with the system.
• Seek professional advice if needed, ensuring compliance with all requirements.

How to Sign Up for MTD for ITSA Early Testing

Signing up for the early testing phase of Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) allows businesses and landlords to familiarise themselves with the new system before it becomes mandatory. Here’s what you need to get started:

Eligibility Criteria

To participate in early testing, you must:

• Be a self-employed individual or landlord with an annual income above £50,000 (or expected to be within this threshold when MTD becomes mandatory).
• Use compatible software to keep digital records and submit updates to HMRC.
• Have an up-to-date Government Gateway account.
• Be registered for Self Assessment with HMRC.

Steps to Sign Up

1. Check Your Software

• You need HMRC-recognised MTD-compatible software. Many providers offer solutions that allow digital record-keeping and direct submissions to HMRC.

1. Register with HMRC

• Go to the HMRC website and navigate to the MTD for ITSA sign-up page.

• Log in using your Government Gateway credentials.

• Provide the required details, including your business type and income details.

1. Start Keeping Digital Records

• Once signed up, begin recording your income and expenses digitally.

• Ensure all transactions are accurately categorised for tax purposes.

1. Submit Quarterly Updates

• Participants in the early testing phase will submit quarterly reports to HMRC using their chosen software.

• These updates will help HMRC refine the system before full implementation.

1. Provide Feedback

• HMRC encourages early adopters to share their experiences, helping improve the MTD system.

Benefits of Early Participation in MTD for ITSA Testing

Joining the early testing phase of MTD for ITSA offers numerous benefits to businesses, landlords, and tax professionals. Early adopters gain the advantage of:

1. Smoother Transition: Getting accustomed to digital record-keeping and quarterly submissions well in advance of the mandatory deadlines allows taxpayers to adapt at their own pace, reducing the risk of last-minute issues.
2. Access to HMRC Support: Participants in the pilot program receive direct assistance from HMRC, ensuring they understand the system and can address any concerns before the full rollout.
3. Influencing the System: Early adopters can provide feedback to HMRC, shaping the development and refinement of the MTD process, making it more user-friendly and effective.
4. Improved Tax Management: Regular digital submissions offer a clearer picture of tax obligations throughout the year, preventing surprises and allowing better financial planning.
5. Minimised Risk of Penalties: By familiarising themselves with MTD for ITSA ahead of time, taxpayers reduce the chances of late submissions or non-compliance when the system becomes mandatory.

Making Tax Digital for ITSA is a significant step toward modernising the UK tax system, offering greater accuracy, efficiency, and financial transparency. While the transition may require an initial adjustment, early adoption ensures a smoother experience, allowing taxpayers to stay ahead of compliance requirements. By embracing MTD for ITSA early, self-employed individuals and landlords can benefit from a more efficient and hassle-free tax process.

For the full session, please click here. Chris Bagguley and Lenny Barry cover the following topics during this course:

• The Background to Making Tax Digital for Income Tax
• Who’s in?
• What’s involved?
• Signing up to Making Tax Digital for Income Tax
• How to be involved in Testing

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.