In December 2022, the timetable for the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) was changed.

The Government declared that instead of launching in 2024, MTD for ITSA would be rolled out in compulsory phases, beginning 6 April 2026.

What is MTD for ITSA?

MTD for ITSA constitutes a part of the wider Making Tax Digital programme spearheaded by HM Revenue & Customs (HMRC).

The initiative obliges individuals, encompassing self-employed individuals and landlords, to keep digital accounts of their earnings and expenditures and utilise compatible software to relay their tax details to HMRC.

This will replace the conventional practice of submitting Self-Assessment tax returns either on paper or via the HMRC website.

What are the phases?

1. Phase one – Self-employed individuals and landlords with a turnover exceeding £50,000 will be the first to join. HMRC predicts this will include over 700,000 people.
2. Phase two – Those possessing a turnover above £30,000 must join come April 2027.
3. Potential third phase – Discussions are presently underway regarding the introduction of MTD for ITSA for those with a turnover under £30,000, a category believed to compromise around 2.6 million taxpayers.

How to get started with MTD for ITSA

As MTD for ITSA becomes an integral part of the UK’s tax system, it is crucial to understand how to transition to this new digital approach.

Here are some fundamental steps to help you adapt to the changes:

• Assess your eligibility – Verify your financial standing to determine which phase of the MTD for ITSA rollout applies to you. Review the turnover thresholds mentioned above to ascertain when you will need to make the switch.
• Choose compatible software – Investigate and select a software solution that is compatible with MTD for ITSA. Many software providers have developed tools specifically to work with HMRC’s system. Ensure that the chosen platform complies with the standards set by HMRC.
• Maintain digital records – Begin to keep your income and expenditure records digitally if you haven’t already. Digitalisation doesn’t merely mean using spreadsheets. It may involve utilising advanced accounting software, which can make the record-keeping process more streamlined and efficient.
• Consult with professionals if needed – If you find the process confusing or challenging, don’t hesitate to seek professional advice. Accountants who are familiar with the MTD initiative can offer valuable guidance and assistance.
• Monitor for updates and changes – Stay informed about ongoing discussions and future alterations to MTD for ITSA, especially if you fall into a category where regulations might still be ongoing, such as those with a turnover under £30,000.
• Prepare for the transition – Even if the mandatory phase for your business is still some years away, it is advisable to start planning now. Familiarise yourself with the requirements, train your team if necessary and consider a trial run of the new system.

Transitioning to MTD for ITSA may seem daunting, but with proper planning and adherence to the guidelines, the switch can be smooth and advantageous.

Embracing this digital transformation not only ensures compliance with the law but also offers an opportunity to enhance the efficiency and accuracy of your financial management.

For additional insights on MTD for ITSA, please get in touch today.