If you’re self-employed or a landlord, you may have heard about Making Tax Digital for Income Tax Self-Assessment (MTD ITSA). But what does it actually mean for you?
The way we report and pay tax is changing. For decades, UK tax returns have been mostly manual: you collect up your receipts and invoices throughout the year, then send in a single annual tax return to HMRC. It’s a process that’s time-consuming, error-prone, and, let’s be honest, stressful for many small business owners. Did you know that a whopping 4409 returns were filed on Christmas Day 2024?
Making Tax Digital (MTD) is HMRC’s attempt to modernise the system by moving it entirely online. Instead of scrambling once a year to file your tax return, you’ll send regular digital updates through approved software. The goal is to reduce mistakes, cut down on paperwork, and give you a clearer picture of your finances throughout the year.
What is Making Tax Digital?
In short, MTD is the government’s plan to digitise tax reporting. That means no more once-a-year tax returns and no more paper records.
Instead, you’ll need to:
- Keep digital records of your income and expenses using compatible software.
- Send quarterly updates to HMRC showing your income and expenses for that period.
- Submit a final end-of-year declaration to confirm your total income and make any final adjustments or claims for reliefs and allowances.
MTD for VAT has already been in place for VAT-registered businesses since 2019, and now the government is rolling out MTD for Income Tax Self-Assessment (MTD ITSA). This will apply to individuals and businesses with taxable income over a certain threshold (currently £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028).
Ultimately, the aim is to make the tax system more accurate, efficient, and easier to use. But it does mean you’ll need to change the way you keep your records and report your figures.
Are You Affected?
You’ll be affected by MTD ITSA if you:
- Are self-employed (including sole traders and freelancers) and your annual income is above £50,000 (from April 2026) or £30,000 (from April 2027). And £20,000 from April 2028.
- Are a landlord who earns rental income above those same thresholds.
- Are a partnership where at least one partner is an individual (MTD for partnerships will come later, after sole traders and landlords).
- Have a combined income over the threshold (for example if you’re a business owner and a landlord, if your individual incomes add up to over that £50,000 threshold, you’re in).
If your total self-employed or property income is below £20,000, you won’t be brought into MTD just yet — though HMRC has said it may include smaller businesses in the future once the system is fully up and running. So you’ll still need to keep an eye on things.
If you’re an employee or a pensioner who doesn’t have business or property income, then you’re in the clear and won’t be affected.
What Is Compatible Software?
The new regulation is fairly specific about what it considers ‘compatible software’, which means you need to be sure the digital accounting software you’re using matches their requirements. Luckily, HMRC have published a list of the accounting software that has been approved for use in the new MTD initiative, and is updating it all the time. At the moment there are 46 providers, but we suspect more will be added as the deadline draws closer. Just a few of the brands approved for MTD are:
- Accu-Man
- Ajaacts
- BTCSoftware
- BX
- Clear Books
- DTraks
- eFileReadt
- Farmplan
- FreeAgent
- Go Simple Software
- Intuit QuickBooks
- IRIS
- Liquid Accounts
- PwC (spreadsheet & enterprise versions)
- Quickfile
- Sage
- Simplf-HQ
- Tax Optimiser
- Xero
- Zoho
In other words, some of the biggest and most established accounting software’s out there, and many more besides. There are more names being added to this list all the time, as more accounting software providers go through the steps needed to become compatible with HMRC’s requirements. So if you see the name of your current software provider on that list, you’ll probably be OK. But if you are using a software tool to track and calculate your VAT, we still recommend you double check they are compliant by looking on this list. At Bluebell we would recommend Xero, FreeAgent and Sage as our top 3, but we recommend any supporting software over shoeboxes of receipts and spreadsheets!
If you’d like some more information, you can either contact me for a chat, or you can buy a copy of my guide to Making Tax Digital. It’s packed full of information and tips to help you understand and prepare for MTD as a sole trader or a landlord (or both!). Don’t leave it to the last minute. Take control of your tax with confidence. Whether you’re just getting started or want to double-check your setup, this guide gives you all the ins and outs in one place.