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Sage 50 Accounts will support Making Tax Digital for Income Tax. We will be providing more information in the coming months.
What's changing under MTD for ITSA
Who is affected by MTD for ITSA?
On 19th December 2022 the UK government announced a new timetable and scope for the mandation of MTD for ITSA.
Prior to the announcement, self-employed individuals and landlords with an income of more than £10,000 were required to comply with the requirements of MTD for ITSA from 6th April 2024.
Under the revised timetable and scope, self-employed individuals and landlords with an income of more than £50,000 will be required to comply with the requirements of MTD for ITSA from 6th April 2026
Self-employed individuals and landlords with an income of between £30,000 and £50,000 will be required to comply with the requirements of MTD for ITSA from 6th April 2027
What if my income is below £30,000?
This revised timetable and scope means that self-employed individuals and landlords with an income below £30,000 will, as things stand, not be required to comply with the requirements of MTD for ITSA. However, the government confirmed that they would carry out a review of the needs of smaller businesses, and particularly those under the £30,000 threshold.
Does the £30,000/£50,000 threshold refer to income or profit?
The threshold refers to qualifying income rather than profit.
Your qualifying income is the combined income that you get in a tax year from self-employment and property income sources. This is assessed this before expenses are deducted (that is, your gross income or turnover).
When will my qualifying income be assessed?
The current understanding is that qualifying income will be assessed in the tax year two years before the tax year in question. For example, the assessment of qualifying income for mandation in 2026/27 will be based on the 2024/25 tax return.
The threshold relates to the sum of all income from self-employment and property income.
Yes, if qualifying income is below £30,000/£50,000 then you're exempt from the requirements under MTD for ITSA and should continue to complete and file a Self-Assessment tax return if required.
MTD for ITSA only applies to individuals with income from self-employment or property businesses that are subject to Income Tax. If you are required to complete a Self-Assessment tax return for another reason you will continue to do so in line with the current process.
Will limited companies be impacted?
Limited companies are not within scope for MTD for ITSA. However, they will be within scope for MTD for Corporation Tax which is expected to be mandated at some point after the roll out of MTD for ITSA.
Similar to MTD for VAT, MTD for ITSA requires self-employed individuals and landlords to keep their records digitally and to submit quarterly updates of business income and expenses to HMRC using MTD-compatible software.
Self-employed individuals and landlords will no longer file an annual Self-Assessment tax return. Instead, they will be required to send tax and accounting adjustments via a process known as the End of Period Statement, for each business they will also need to make a ‘final declaration’ in order to declare any other non-business income either through compatible software or via HMRC online services account
The number of submissions depends on the number of businesses you have. For each business, you will need to file 4 quarterly updates and an End of Period Statement to finalise business profits. You will then submit a Final declaration with any other income, gains or reliefs.
You will only need to complete a Self-Assessment tax return if the information that you need to submit is not supported under Making Tax Digital.
Any non-business income will bedeclared as part of the final declaration process which can be done either through your compatible software or your HMRC online services account.
The quarterly updates only need to include a summary of income and expenses for self-employments and property. Non-business income does not have to be submitted quarterly.
No, MTD for ITSA only refers to digital reporting requirements. It doesn't affect existing tax rules, including how and when tax is paid.
What happens if I need to amend a submission?
MTD for ITSA sign up
For guidance from HMRC for both business sign up and agent sign up, visit GOV.UK.
You can continue to use the same Agent Services Account that you set up for MTD for VAT. However, you will need to copy your client's existing authorisation for Self-Assessment from your HMRC online services for agents account to your existing Agent Services Account.
If a client is not authorised on your agent services account, you can either:
- Copy your client's existing authorisation to your Agent Services Account, or
- Ask your client to sign their own business up, then authorise you for Making Tax Digital for Income Tax. Read more >
If you are required to comply with the requirements of MTD for ITSA then you will need to sign up regardless of whether you are already signed up to MTD for VAT or not.
Important dates
Businesses will need to sign up ahead of their mandation date which will either be 6th April 2026 or 6th April 2027 depending on their income.
As a result of the Basis Period Reform, quarterly reporting under MTD for ITSA will be aligned to the tax year and not the business’s accounting period. We’ve covered this topic in more detail in this knowledge article., HMRC have also indicated that at some point in the future it will be possible to change MTD for ITSA quarters so that they follow the calendar year i.e. 1st April – 30th June and so on.HMRC have also indicated that at some point in the future it will be possible to change MTD for ITSA quarters so that they follow the calendar year i.e. 1st April – 30th June and so on.
Quarters for VAT and for ITSA won’t be aligned as ‘standard’ but if your VAT quarter falls April – June and you move your MTD for ITSA quarters to follow the calendar year then it will be possible for the two to be aligned.
You must send a quarterly update within one month of the end of the quarterly period. If you do not send it by this deadline, you may need to pay a late submission penalty.
Yes – As things stand, VAT registered unincorporated businesses will need to do two sets of updates – one for VAT and one for income tax.
There is currently no guidance to indicate the reporting dates will be aligned. However, this may be addressed by HMRC further down the line.
Record keeping
Yes – Spreadsheets will still be acceptable under MTD for ITSA. However, if a spreadsheet is used it will need to be MTD enabled or used with ‘bridging software’ to ensure data can be submitted to HMRC in a compliant manor.
Individuals reporting under MTD for ITSA must keep digital records for each business from the date they join MTD for ITSA (either through mandation or early adoption) until the date on which the business ceases. Digital records are records of each transaction made in the course of the business and must detail:
- The amount of the transaction
- The date of the transaction
- The tax category of the transaction (these are the same categories used for the existing self-assessment process)
Digital links
A digital link is where data is transferred or exchanged electronically within or between software that makes up your ‘functional compatible software’. This should not involve any manual intervention, such as copying and pasting or re-typing information.
A digital link includes linked cells in spreadsheets. For example, if you have a formula in one sheet that mirrors the source’s value in another cell, then the cells are linked.
To follow the rules for Making Tax Digital for Income Tax, you’ll need compatible software.
You can check which software packages are compatible by visiting GOV.UK
HMRC advise that using cut and paste, or copy and paste, to select and move information is not classed as a digital link.
Bridging software is a tool that allows information from non-MTD enabled software to be reported digitally to HMRC.
Landlords
The £30,000/£50,000 threshold applies to the total income from self-employment and property. The threshold would therefore relate to the landlord rather than individual properties.
Find out more at GOV.UK
This will depend on the type of property. All properties that are in the UK are treated as one ‘UK property business’ and all properties outside of the UK are treated as one ‘overseas property business’. For each business, you will need to file 4 quarterly updates and an End of Period Statement to finalise business profits. You will then submit a Final declaration with any other income, gains or reliefs.
The £30,000/£50,000 threshold applies to the total income from self-employment and property meaning in this scenario – yes, you would have to comply with the requirements of MTD for ITSA.
Partnerships
On the 19th December 2022 the UK government announced a new timetable and scope for the mandation of MTD for ITSA. This revised timetable did not include a date for the mandation of partnerships. However, the government confirmed that they remain committed to introducing MTD for ITSA to partnerships at a later date, to be confirmed.
CIS
Yes, there are no exclusions for individuals whose income is partially or wholly within the scope of CIS.
HMRC have not currently indicated any change to CIS due to the introduction of MTD for ITSA.
MTD for ITSA solutions
Yes, a relevant individual must use functional compatible software to comply with the following requirements:
- create and store digital records of each of your business transactions
- send updates of the totals of your business income and expenses every 3 months.
- confirm end of period statements
You will also need to make your final declaration. This will be possible either through your functional compatible software or your HMRC online services account.
Sage will have solutions for our customers to meet their MTD for ITSA obligations. Sage is working closely with HMRC, accountants and small business owners to understand and build a great user experience to support Making Tax Digital for ITSA.
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