Making Tax Digital for Income Tax Self-Assessment

Under the requirements of MTD for ITSA, individuals who are subject to income tax on the profits of their trade, profession, vocation or property business will be required to keep their accounting records electronically (either using suitable software or on spreadsheet) and file quarterly returns to HMRC with details of their income and expenditure together with any other information that HMRC specifies. A final declaration will then be submitted after the tax year once the individual’s tax affairs have been finalised.

Although the frequency of reporting is to change, the timing of tax payments will not and the current system of payments on account and balancing payment by 31 January after the tax year is expected to remain in place for the foreseeable future.

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On 19 December 2022, it was confirmed that mandation of MTD for ITSA will be phased, with the exact date dependent on the taxpayer's income:

• From April 2026, self-employed individuals and landlords with an income of more than £50,000 will be mandated into MTD for ITSA. 
• Those with an income of between £30,000 and up to £50,000 will be mandated from April 2027.

At the Autumn Statement on 22 November 2023, it was confirmed that MTD for ITSA would not be extended to landlords and sole traders with income under £30,000 at this time. However, the Government will keep this decision under review, and there remains the possibility that this population will be brought into MTD for ITSA at some point in the future.

Although the Government has said they remain committed to extending MTD for ITSA to general partnerships, this will not take place in April 2025 (as originally planned) but from a date yet to be confirmed. All other partnerships (e.g. those that have corporate partners and Limited Liability Partnerships) are also expected to be required to join MTD at a future date (to be confirmed).

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Income threshold

As noted above, the roll out of MTD for ITSA will be phased, depending on the level of a taxpayer's income.  Self-employed individuals and landlords with income over £50,000 will be mandated into MTD for ITSA from April 2026, with those with income between £30,000 and £50,000 mandated from April 2027. Those with income under £30,000 will not be brought into MTD for ITSA for now, but the Government is keeping this decision under review.

Digital exclusion

In line with the exemptions for MTD for VAT, individuals should not have to follow the MTD for Income tax rules if any of the following apply:

• It’s not reasonably practicable for them to use digital tools to keep their business records or submit quarterly returns due to age, disability, remoteness of location or any other reason (often referred to as ‘digital exclusion’).
• They are subject to an insolvency procedure.
• The business is run entirely by practising members of a religious society or order whose beliefs are incompatible with using electronic communications or keeping electronic records.

Where any of the above apply, the individual has to apply to HMRC to claim an exemption, with HMRC having 28 days to either grant or deny the application.

Where a business has already qualified for an exemption from MTD for VAT, they should also be exempt from MTD for ITSA.

Other exemptions

The following are also exempt from MTD for ITSA:

• Non-resident companies
• Trustees, executors and administrators
• Foreign businesses of non-UK domiciled individuals
• Foster carers
• Those with no National Insurance Number

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Quarterly updates

All businesses within MTD for ITSA will have to provide quarterly updates of their income and expenses. These quarterly updates will be cumulative, and cover the following periods, with the following deadlines, regardless of the accounting period end of the business:

Alternatively, businesses can make a 'calendar quarter election' which allows them to draw up quarterly updates to the end of the previous month. Where this election is made, the quarterly updates will be as follows:

The first quarterly updates under MTD for ITSA will therefore be due for filing by 7 August 2026, and will cover either the quarter ended 5 July 2026, or 30 June 2026 (where a calendar quarter election is in place).

Separate quarterly updates will be required for each trade or property business carried on by an individual. There is no requirement to make tax or accounting adjustments to the information provided in quarterly updates.

An Update Notice published on 22 February 2024 sets out the categories of income and expenses which will need to be reported in the quarterly updates. This also confirms that, where a business has an annual turnover below the VAT registration threshold, it may choose to provide the total of all income and the total of all expenses in the quarter, instead of the totals of the amounts falling within each category of transaction. Retailers can also opt to record their daily gross takings, rather than each individual sale they make.

At the Autumn Statement 2023, it was announced that relaxed reporting requirements would apply for joint property owners, who can choose to only report their share of the property income (and not expenses) in their quarterly updates. Further information on this relaxation is expected later this year in the form of a Joint Property Notice. A draft of this notice was published for consultation in December 2023.

End of Period Statement (EOPS)

The EOPS was intended to perform a similar role to the self-employment or property pages on the current ITSA return - i.e. making the required tax and accounting adjustments and finalising the tax position of the trade or business.

At the Autumn Statement on 22 November 2023, it was announced that the EOPS would be removed as a formal requirement. Instead, this process will be rolled into the Final Declaration.

Final declaration

The Final Declaration will bring together all business and personal information needed to determine the final tax liability, including information from MTD sources of income (e.g. trading and property income) and non-MTD sources of income (e.g. dividends and interest), allowances and reliefs.

Only a single final declaration will be required for each taxpayer. This will be due by the normal self-assessment deadline of 31 January following the relevant tax year.

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In order to access MTD services and to supply updates on behalf of clients, agents need an Agent Services Account (ASA). Each agency will have just one ASA per firm, and will be able to set up staff with administrator or assistant access to the account. Many AIA members may already have created an ASA in order to submit MTD for VAT returns or Trust Registration Service returns.  

A basic outline of the ASA and how to set one up can be found here. 

HMRC publish details of any down time for maintenance or service issues.

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HMRC are currently running a limited pilot of MTD for ITSA, though this is expected to expand from April 2024, when they will move into a wider 'private beta' phase.

Taxpayers and agents can currently only sign up for the pilot through their software provider.

To take part in the pilot, businesses will need to record their income and expenses in MTD compliant software which lets them send quarterly income tax updates to HMRC. They will also need a year-end which aligns exactly with the tax year (i.e. 5 April).

Likewise, agents that sign clients up to the pilot (including clients whose digital records are being kept by the agent and clients that keep their own digital records) will need a software package that lets them send the updates to HMRC on their clients’ behalf.

The current list of MTD for Income tax compatible software products is set out on GOV.UK. There are a number of other products at various stages of development and HMRC have said that they will continue to add to this page as new products become available.

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Enabling primary legislation for MTD for businesses for Income Tax was included in Sections 60 to 61 and Schedule 14 of Finance (No.2) Act 2017.  The explanatory notes to the original Bill can be found here.

Regulations setting out more details on MTD for ITSA were laid on 23 September 2021.  These regulations are amended by the Income Tax (Digital Requirements) (Amendment) Regulations 2024 which were laid on 22 February 2024.  

On 7 December 2023, HMRC published further draft legislation for consultation. This includes regulations to amend the original regulations on MTD for ITSA (laid on 23 September 2021) and tertiary legislation comprising a software notice, joint property owners notice and update notice.   Following that consultation, a final Update Notice has been published, with final version of the remaining notices expected to be released later this year.

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Software

Individuals within MTD for Income tax will be required to use software to keep their records and submit returns to HMRC via their Application Programming Interface (API). 

There are essentially three different types of MTD compliant software:

• Software packages that can be used to keep digital records and file returns via HMRC’s API.
• API enabled spreadsheets – spreadsheets with an inbuilt function allowing them to file returns via HMRC’s API.
• Bridging software which can take return information from an existing spreadsheet and submit this to HMRC via their API.

Where a spreadsheet is used, the relevant data must be digitally transmitted from the spreadsheet or other source where the digital records are kept, directly to HMRC. The summary information for completion of the quarterly and final returns must not be physically re-typed into another software package.

The current list of MTD compatible software for income tax is here.

Other information and guidance

HMRC's guidance on MTD for ITSA can be accessed from its collection page.  

HMRC have also produced a Making Tax Digital for Business – stakeholder communications pack which contains a variety of information for both Income tax and VAT, including some frequently asked questions.

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