Making Tax Digital (MTD) is a UK government initiative aimed at transforming the tax system to make it more effective, efficient and easier for taxpayers to manage their affairs. Initially introduced for VAT-registered businesses, MTD is now extending to Income Tax Self Assessment (ITSA), affecting sole traders and landlords. Preparing for this transition is crucial to ensure compliance and to benefit from the streamlined processes MTD offers.

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) requires unincorporated businesses – ie sole traders and partnerships and landlords with qualifying income – to maintain digital records and update HMRC each quarter using compatible software. This approach aims to provide a more real-time view of tax liabilities, reducing errors and improving the efficiency of the tax system.

At the Autumn Budget 2024, it was announced that by the end of the Parliament (ie by April 2029 at the latest), sole traders and landlords with total qualifying income over £20,000 are likely to be mandated to use MTD for ITSA. The payment on account process and timing remains unchanged.

In the Spring Statement announcement on 26 March 2025, the government has confirmed the continued rollout of Making Tax Digital (MTD) for income tax Self Assessment (ITSA), with sole traders and landlords with qualifying income over £20,000 joining from April 2028 – earlier than previously announced. The government has also stated that it will continue to explore how it can best bring the benefits of digitalisation to more of the around 4m taxpayers who have income below the £20,000 threshold.

Following the Spring Statement announcement, for individuals, MTD for ITSA will be introduced in three phases:

• from April 2026, for those with qualifying income over £50,000
• from April 2027, for those with qualifying income over £30,000
• from April 2028, for those with qualifying income over £20,000.

Preparing for MTD for ITSA

To ensure a smooth transition to MTD for ITSA, consider the following steps:

1. Determine when you or your clients need to comply based on income thresholds. Review financial records for the tax years 2024-25 and 2025-26 to anticipate obligations.
2. Select MTD-compatible software that suits your business needs. HMRC provides a list of compatible software options, including bridging software for those who prefer to continue using spreadsheets.
3. Begin maintaining digital records of all income and expenses. This practice not only ensures compliance but also facilitates accurate and efficient tax reporting.
4. Register for MTD for ITSA through HMRC’s Agent Service Account services. More details for signing up can be found on HMRC Developer Hub.
5. Once registered, you will need to submit quarterly updates of your income and expenses using your chosen software. These updates provide HMRC with a real-time view of your tax position.
6. At the end of each tax year, review and finalise your income and expenses, making any necessary adjustments before submitting the final declaration.

Benefits of early adoption

Voluntarily adopting MTD for ITSA ahead of mandatory deadlines offers several advantages:

• gives you time to become comfortable with the new system and software
• digital record-keeping minimises manual errors, leading to more accurate tax returns
• quarterly updates provide a clearer picture of your financial position throughout the year.

HMRC will be running further testing and practitioners can sign up some clients voluntarily to start testing the system in preparation for the live mandatory filing commencing in April 2026 – see our article, 'Sign up voluntarily for Making Tax Digital for Income Tax’, for further details.

Resources and support

HMRC offers various resources to assist with the transition which can be found on:

• HMRC manual SAM50500 – Digital Services
• HMRC guidance
• ACCA MTD hub for webinars and further resources