Introduction to Making Tax Digital (MTD) and Next Steps

I trust you are keeping well.

As part of the government's ongoing effort to digitalise tax administration, Making Tax Digital (MTD) will soon become mandatory for businesses. We wanted to take a moment to explain how this may impact you and outline the next steps.

MTD requires businesses to maintain digital records and submit tax information to HMRC electronically. Specifically, MTD for ITSA applies to self-employed individuals and landlords who are required to file Income Tax Self Assessment (ITSA) returns.

Starting from April 2026, individuals with an income over £50,000 from self-employment or property will be required to keep digital records and submit their income tax details quarterly to HMRC through compatible software. Those with an income of between £30,000 and £50,000 will need to do this from April 2027.

This is a significant change from the current annual self-assessment system. The aim is to improve the accuracy of tax returns, reduce administrative burdens, and ensure that tax is paid in a timely manner.

Under MTD for ITSA, taxpayers will need to:

1. Keep digital records: This includes income, expenses, and other relevant financial information.

2. Submit quarterly updates: Report income and expenses to HMRC on a quarterly basis, rather than once a year.

3. File an end-of-year declaration: Submit a final annual update at the end of the tax year to reconcile the quarterly information.

Next Steps to Take

To ensure a smooth transition, we recommend conducting a pilot test. This will allow us to simulate a submission and verify that everything is working correctly before you make live submissions to HMRC. It helps identify any potential issues, which we can resolve ahead of time, making sure the process runs smoothly when it matters most. 

Please let us know if you would like sign up for the pilot testing and we will get back to you with a plan for implementation.

We understand that transitioning to this new system may feel overwhelming, but rest assured, we are here to support you every step of the way. Our team is equipped to assist you with setting it up, maintaining digital records, and timely submissions to HMRC.

Let us know if you have any questions or concerns regarding the MTD requirements, or if you are ready to begin the next steps. We are happy to guide you through the process and make this transition as seamless as possible for you. 

Regards,

 Arun