Confused about MTD? In this blog, we explain some key considerations.
Making Tax Digital, also known as MTD, is an important reform of the UK tax system, which will affect millions of self-assessment taxpayers. Its aim is to digitalise the UK’s tax system.
It has already been introduced for VAT reporting (MTD for VAT) but will affect income tax returns from 6 April 2026 (On the 19th December 2022 the Treasury announced this new data, a 2 year delay from the previous deadline). Although 93% of businesses are aware of the new system, over a quarter believe it does not affect them.
MTD for ITSA will have a big impact on self-employed individuals and landlords. You'll need to comply with Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) by 6 April 2026 if you are a sole trader, private residence landlord, or anyone else who pays tax via Self Assessment, but only if you have sales of more than £50,000 per annum. Sole traders with lower sales will follow later.
What is MTD for ITSA software?
As part of the government's plan to digitise the UK tax system, Making Tax Digital for Income Tax Self-Assessment requires landlords and self-employed individuals who earn more than £50,000 a year to use MTD-compatible software.
To use MTD software, you must sign up for it on the government website and authorise your software. Once you do this, you can use it to submit your income and expenses electronically.
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How will MTD for ITSA affect you?
MTD for ITSA requires you to keep digital records of your income and expenses and send HMRC a quarterly summary. Based on the information you have provided, you will receive an estimated tax calculation.
You also have to submit an end-of-period statement (EOPS). At the end of the year, after all of the quarterly returns, the EOPS adjusts the figures as necessary, and then there is “finalisation”, replacing the old Self Assessment tax return.
- HMRC will calculate much tax you owe and you must pay by 31st January (in the following tax year).
📑 Read more: MTD for Income Tax Self Assessment - what it means for your business
Signing up to MTD
To get started with MTD, you must use an Income Tax Self-Assessment Software that is MTD compatible.
HMRC has outlined the process for signing up to the new system, and MTD software providers can help you get started.
Whether you're a self-employed individual or a small business owner, MTD software can help you keep track of your earnings, expenses, and exemptions.
Signing up for MTD is not difficult.
All you need is a computer and an internet connection. Once you've made the registration, you should receive a confirmation email from HMRC within three days.
Obligations under MTD
If you are self-employed and have an annual turnover of over £10,000, you will need to prepare a digital tax return. This means that you will have to make all of your business expenses and income digitally and submit these records to HMRC using MTD-compatible software.
This includes submitting quarterly reports every three months and making a final declaration at the end of each tax year. The software should be able to produce these reports automatically.
Do you need to join the MTD for ITSA test pilot?
Signing up for MTD for ITSA isn’t mandatory at the moment, however, some taxpayers have joined the test pilot scheme.
This can have some benefits, for example, you can learn how MTD for ITSA works in advance and find the right MTD for ITSA software for your trade business.
Powered Now has already launched MTD for VAT software solution and it’s now developing its MTD for ITSA software for trade businesses.
📑 Read more: Making Tax Digital FAQs
MTD for ITSA does allow for some limited situations where an exemption can be obtained. While this exemption is not available to everyone, those who can demonstrate that they are unlikely to need to use self-assessment software can still apply for the exemption.
Making Tax Digital is intended to cover all parts of the tax system and will have a huge impact.
If you need to find out more about MTD, you can visit our MTD Hub. If you would like to learn how Powered Now can help, book a demo or start a free trial today.