Making Tax Digital: Income tax self-assessment


Making Tax Digital: Income tax self-assessment

Making Tax Digital (MTD) is HMRC’s programme to encourage businesses to manage their records and taxes digitally. HMRC believes this will make tax administration more efficient and simpler for the taxpayer.

The first phase of MTD went live 1 April 2019 for VAT registered businesses and became compulsory for all such businesses from 1 April 2022. The Starling Business Toolkit is MTD compatible for VAT, for most businesses.

The next phase to roll out, MTD for income tax self-assessment (or MTD for ITSA as it’s commonly known), will cover certain unincorporated businesses; the first phase will capture businesses with total annual income of £50,000 and this threshold is reduced to £30,000 for the second phase a year later. It’s important to note that this limit is income and not profit.

MTD for ITSA is already being used by some businesses as part of the pilot but others won’t be required to use it until at least 1 April 2026.

Here’s an overview of the government’s MTD plan:

The MTD Timeline

What could this mean for you?

If you’re a sole trader, you’ll have to start keeping digital records (if you’re not already) and submitting quarterly tax information to HMRC from April 2026 if you have income above £50,000 or April 2027 if you have income above £30,000. This process is similar to submitting VAT returns through MTD.

Each quarterly submission will need to be made within 30 days of the quarter end, which is a shorter time period than the current equivalent requirement, to submit VAT returns within one month and one week of the period end.

You’ll be required to use MTD ITSA compliant software in order to make the required submission and HMRC is hopeful that commercial software providers will offer some free software.

Get on top of your finances

The old method of tax reporting meant that after 5 April, you had nine months to prepare your return before it was due on 31 January, the following year. MTD means you report 30 days after each quarter during the year. So for the first 10 months you will need to prepare information for both, if you don’t have your accounts for the previous year in order.

This means that it’s important to get on top of your finances now, before you have to handle two sets of tax submissions simultaneously.

The Starling Business Toolkit and other software is designed to make business admin and bookkeeping as painless as possible for small business owners.

What you need to do to prepare for MTD income tax self-assessment

  • Prepare your accounts for the tax year to April 2026 as soon as the period ends. This means you won’t need to juggle doing current MTD quarterly returns and finding receipts for the previous year.
  • Look into suitable bookkeeping software that will enable you to keep digital records in a simple, practical and cost effective way. The Starling Business Toolkit, available to customers for just £7 a month, could be one option.
  • The software used for MTD needs to be compatible with HMRC.
  • Introduce regular bookkeeping at least once a quarter but preferably daily, weekly or monthly.
  • If you do your own bookkeeping and tax submissions at the moment, consider whether you’ll need to consult a bookkeeper and/or an accountant.

This article is intended as general information only and does not constitute advice in any way. For any specific questions, you may want to consult your legal advisor or accountant.

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