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Self-Employed or a Landlord? Big Changes Ahead: Are You Ready for Making Tax Digital for Income Tax? (MTD ITSA)

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From 6 April 2026, Making Tax Digital for Income Tax (MTD ITSA) will transform the way self-employed individuals and landlords manage their tax affairs. If you earn income through self-employment or property rentals, you’ll need to keep digital records and submit updates to HMRC every quarter. While payment deadlines remain the same, the shift to more frequent reporting means you’ll need to stay on top of your bookkeeping because the way you report your earnings is changing – are you prepared?

Who Is Affected by Making Tax Digital for Income Tax (MTD ITSA)?

MTD ITSA applies to self-employed individuals and landlords with gross qualifying income exceeding £50,000 from April 2026 and income exceeding £30,000 from April 2027. Here, qualifying income refers to combined sole trade and property income measured before deducting expenses. For jointly held income (for example, a rental property owned equally by a couple), only each individual’s share of the gross income is considered.

Exemptions:

  • Individuals lacking a National Insurance number on 31 January will automatically be exempt for the following tax year.
  • Those who are digitally excluded may also claim an exemption, although the precise application process is yet to be confirmed.

For now, sole traders and landlords with a turnover of £30,000 or less will continue under the current Self-Assessment system. The Autumn Budget 2024 indicated that those with turnovers between £20,000 and £30,000 would be brought into MTD ITSA by the end of this Parliament, but a specific date has not been set.

Partnerships (including LLPs): and their individual members are not yet included, though non-partnership income exceeding the thresholds would fall under MTD ITSA.

Limted Companies: are excluded from MTD ITSA, and it remains uncertain when Corporation Tax might be incorporated.

MTD ITSA Roll out Timeline

Making Tax Digital for Income Tax (MTD ITSA) will be implemented in two phases:

  • Phase 1 (from April 2026): Applies to individuals with gross qualifying income above £50,000.
  • Phase 2 (from April 2027): Applies to individuals with gross qualifying income above £30,000.

The income thresholds are determined based on the most recent tax return filed before the mandation date. For example, if a 2024/25 tax return (due by 31 January 2026) reports gross qualifying income above £50,000, the taxpayer will be required to join MTD ITSA from 6 April 2026. If a new income source began during the year, the reported figure will need to be adjusted to reflect a full 12-month period when comparing it against the threshold.

Reliefs and Allowances

Income exempt from reporting, because it is covered by reliefs or allowances (such as Rent a Room relief or trading/property allowances) will not count toward the thresholds. However, if a taxpayer is required to join MTD ITSA, they must comply with the digital record keeping for all sources of trade and property income, including those covered by such reliefs.

Key Components of MTD ITSA

MTD ITSA consists of three main elements:

  1. Digital Record Keeping:
  • Taxpayers must maintain digital records detailing the amount, category, and date of income and expenses for their sole trade and/or property businesses.
    • Records can be maintained using MTD compatible software or spreadsheets via tailored bridging software.

2. Quarterly Updates:

  • Every quarter, taxpayers must submit a summary of their income and expenses to HMRC, drawn from their digital records.
    • These summaries are not full tax returns; they merely provide totals for each category, without mandatory accounting or tax adjustments.Each trade or property business requires its own quarterly submission. For example, a sole trader who also rents out a property might have to submit separate updates for each source.By default, quarterly periods align with the tax year (eg the first quarter from 6 April to 5 July, with submissions due by 7 August), though taxpayers may elect to use calendar quarters (eg 1 April to 30 June, with the same filing deadlines).
    • Updates are cumulative, meaning errors in one quarter can be corrected in the subsequent submission.

MTD ITSA: Year-End Declaration

  • After the final quarterly update, taxpayers must file a digital tax return.
    • This return, similar to the current Self-Assessment form, will be pre-populated with the figures from the quarterly updates, which must then be adjusted for accounting purposes (eg excluding private use expenses or capital expenditures).This return replaces the current Self-Assessment return for individuals who fall within MTD ITSAAdditional income sources (such as bank interest, PAYE income, and capital gains) must also be reported or verified.Depending on the method used for record keeping, this year-end process may be completed through accounting software or via a new HMRC online service.
    • The filing deadline remains 31 January following the end of the tax year.

HB Accountants are here to make the transition seamless. Make sure you understand what steps you need to take now to stay compliant and avoid to any penalties. We are here to help support and grow your business by giving you access to experienced accountants, tax advisors and useful information no matter your business size or sector.

Please feel free to contact the team on 01992 444466.  We’re accountants for business and we’re here to help you grow.

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any errors or omission or for any person acting on or refraining from acting on the information provided in the above

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