Making Tax Digital for Income Tax: A Simple Guide for Self-Employed Individuals and Landlords

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is a new system designed to simplify the tax process for self-employed individuals and landlords, coming into effect in April 2026.

Whilst all VAT-registered businesses in the UK have had to adhere to business MTD guidelines since 2022, this has not previously affected individuals and landlords paying self-assessment tax until now. MTD for ITSA represents a significant shift in how self-employed individuals and landlords manage their tax affairs, which we have summarised in the simple guide below.

What is Making Tax Digital (MTD)?

Making Tax Digital is part of HMRC’s broader strategy to modernise the UK tax system. The goal is to make tax administration more efficient, reduce errors, and provide taxpayers with a clearer, real-time view of their financial obligations. For income tax, MTD will require self-employed individuals and landlords to maintain digital records and submit regular updates to HMRC.

This change is not just about compliance; it’s about creating a more streamlined and transparent process for everyone involved. By moving away from traditional paper-based methods, MTD aims to make tax management simpler and more accurate.

Benefits of MTD for Income Tax

While the transition to MTD may require some adjustments, there are several benefits to this new system:

• Improved Accuracy: Digital records reduce the risk of errors, ensuring your tax returns are more accurate.
• Real-Time Information: HMRC will have a clearer, up-to-date view of your finances, which can help you avoid unexpected tax bills.
• Simplified Processes: Quarterly updates spread the workload throughout the year, making it easier to stay organised and reducing the stress of last-minute tax preparations.

Who Will Be Affected?

MTD for Income Tax will be introduced in phases, starting with those who have higher levels of income:

• From April 2026: Self-employed individuals and landlords with a gross income of more than £50,000 will need to comply.
• From April 2027: Those with a gross income between £30,000 and £50,000 will be brought into the scheme.

If your income falls below £30,000, you won’t need to join MTD for Income Tax at this stage. However, it’s worth keeping an eye on updates on the HMRC website as they may extend the requirements in the coming years.

Key Requirements Under MTD for Income Tax Self Assessment

Let’s break down what MTD for Income Tax will mean for you in practical terms:

1. Digital Record Keeping
   One of the core elements of MTD is the requirement to maintain digital records of your income and expenses. This means using software or apps that are compatible with HMRC’s MTD system. Digital records will replace traditional methods like spreadsheets or handwritten notes, ensuring greater accuracy and efficiency.

2. Quarterly Updates
   Under MTD, you’ll need to submit quarterly updates to HMRC, summarising your income and expenses. These updates are designed to provide HMRC with a more up-to-date picture of your financial situation, reducing the risk of errors and helping you stay on top of your tax obligations.

The deadlines for quarterly updates are as follows:

• April to June: Due by August 5
• July to September: Due by November 5
• October to December: Due by February 5
• January to March: Due by May 5

These updates are not the same as filing a full tax return. Instead, they provide a snapshot of your financial activity during the quarter.

3. End of Period Statement (EOPS)
   At the end of the tax year, you’ll need to submit an End of Period Statement (EOPS). This is where you’ll finalise your figures, make any necessary adjustments, and confirm your income and expenses for the year. The EOPS is an important step in ensuring your records are accurate and complete.
4. Final Declaration
   The final step in the MTD process is the Final Declaration, which replaces the traditional Self Assessment tax return. This declaration will confirm your total income, allowable expenses, and tax liability for the year. It’s also where you’ll claim any reliefs or allowances you’re entitled to.

What Software Will You Need for MTD for ITSA?

To comply with MTD, you’ll need to use HMRC-approved software to keep your records and submit your updates. The good news is that there are many options available, from simple apps that are ideal for those with straightforward finances, to more comprehensive software designed for larger businesses or those with more complex tax affairs.

HMRC provides a list of approved software on their website, and you may want to speak to your accountant to find the best fit for your circumstances. At Linggard and Thomas most of our clients find the functionality of Xero or Quickbooks suits their tax needs.

Penalties for Non-Compliance

HMRC is introducing a new points-based penalty system for MTD. Under this system, you’ll receive points for missed deadlines, and once you reach a certain threshold, a financial penalty will be applied. 

As of February 2025, the exact details of the penalty system are still being finalised, but the key takeaway is that staying on top of your obligations will help you avoid unnecessary penalties.

What Do You Need to Do to Prepare for MTD for ITSA?

If you’re in the income bracket that requires MTD, here’s how you can prepare:

• Assess Your Digital Readiness: Evaluate your current record-keeping process. If you’re still relying on paper records or outdated spreadsheets, now is the time to upgrade.
• Choose the Right Software: Look for HMRC‑approved software that meets your needs. Consider factors like ease of use, customer support, integration with your existing systems, and cost.
• Plan for the Transition: Start by familiarising yourself with digital record-keeping. You might even consider signing up voluntarily if you’re not yet mandated, so you have plenty of time to learn and adapt.
• Speak to your Accountant: If you use an accountant for your tax returns, speak to them about changes you’ll need to ensure that your current record keeping is compliant.

How Can Linggard & Thomas Help with Maxing Tax Digital for Income Tax?

Making Tax Digital for Income Tax represents a significant shift in how self-employed individuals and landlords manage their tax affairs. While the changes may seem daunting at first, they are designed to create a more efficient and transparent system for everyone.

At Linggard & Thomas, we understand that navigating new regulations can be challenging. As tax return specialists, we can help you understand your obligations, choose the right software and set up your digital records to maintain compliance with MTD for ITSA.

Get in touch with our friendly team of chartered accountants today to see how we can help empower your business to grow.