Making Tax Digital (MTD) is a goverments initiative where it is making the income tax process digital for certain taxpayer within the Income Tax Self-Assessment (ITSA). This has been planned by HMRC since their launch of MTD for the VAT process. The whole aim of the process is void mistakes through miss copying of data and for HMRC to receive tax payments regularly throughout the year.
HMRC will require the whole process of keeping your accounts as digital as possible. This will mean the following areas will require a use of software:
Capturing expenses documents (receipts and invoices)
Sales
Record keeping
Submitting the tax calculations
Will it affect me?
As mentioned above you will need to seperate software for each type of income channel your receive e.g. one for sole trading income and another for property income.
Your accounts will need to be completed and submitted on a quarterly basis with a finalised income submission at end of the finacial year. The deadlines will be as follows
5th August for the period of April to June
5th November for the period of July to September
5th February for the period of October to December
5th May for the period of January to March
When will this start?
HMRC have decided to launch MTD ITSA in 2 stages.
Stage 1 - this will affect those with an income over £50,000 from the 6th April 2026.
Stage 2 - this will affect those with an income over £30,000 from the 6th April 2027.
Should I start earlier?
This is a massive change for clients who either:-
Currently doesn't use software
Only updates accounts on an annual basis
If you are tick either of these then we would suggest you start using software and/or updating your accounts on a quarterly basis. We can help you in both instances.
We be reviewing our own processes to ensure we are all ready for when MTD ITSA comes into affect and there will not be a sudden increase in workload.
Software options
There are a range of software options that you can use, below are a list of providers we currently work with but this is no means a complete list. If you would like to start using any of them then please let us know and we will be happy to set you up.
FreeAgent - Sole Trader and Landlord plans
QuickBooks - Self-Employed, Simple Start. Other plans are ideal for more complicated/bigger organisations
Xero - for bigger accounts
DEXT Solo - Sole trader plan. Only avaliable via a partner
Will there be any cost implications?
Will there be any cost implications?
There will be an increase in costs due to the following reasons, unless you already submit quarterly VAT returns that have the same deadlines as mentioned above (quarters ending June, September, December. March)
Software costs - if not being used already
Bookkeeper/Accountant costs - due to the number of submissions to HMRC and the increase of frequency of update your accounts.
I use an Accoutant and a Bookkeeper, can they both do the submissions?
This is an area that the accounting and bookkeeping bodies have been raising with HMRC, as currently only one will be able to do the submission. Alot of individuals have a bookkeeper to do their day to day accounts (inc VAT) and the accountant to do their tax return. How it is currently this would not be possible, create issues and some accountants have indicated they will turn down work because of this as they don't want to do the bookkeeping. HMRC are looking to fix this ready for the launch so both the accountant and bookkeeper can do submissions. Bookkeeper the quarterly returns and the Accountant doing the end of year return.
Links to further information regarding MTD ITSA
FreeAgent MTD ITSA help page - FreeAgent do great help pages, this link has a downloadable guide on the topic
HMRC's step by step guide
