Making Tax Digital for Income Tax (MTD ITSA): What You Need to Do Before It’s Too Late

What is MTD ITSA?

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is HMRC’s next big step in digitising the UK tax system. It means that, instead of filing one annual tax return, affected individuals will need to keep digital records and send quarterly updates to HMRC using approved software.

The aim is to make tax reporting more accurate and real-time, but for many sole traders and landlords, it’s a big shift in how they manage their finances.

Who Will Be Affected (and When)

MTD ITSA will be rolled out in stages:

• From April 2026: Sole traders and landlords with combined business and property income over £50,000 will need to comply.

• From April 2027: Those earning between £30,000 and £50,000 will be brought into the scheme.

• General partnerships and those below £30,000 will follow at a later date (date TBC).

If you’re already VAT registered and filing via MTD for VAT, you’ll recognise the digital-first process, but ITSA has its own additional rules.

What’s Changing

Here’s what’s new under MTD ITSA:

✅ Quarterly updates: You’ll send four income and expense summaries to HMRC each tax year (every three months).
✅ End of Period Statement (EOPS): You’ll then finalise each business’s figures after the year end.
✅ Final Declaration: Replaces your Self Assessment tax return, confirming all income, adjustments, and reliefs.
✅ Digital record keeping: All income and expenses must be stored in MTD-compatible software (e.g. Xero).

This means spreadsheets alone won’t be enough unless they’re linked to approved bridging software.

Why Preparation Matters Now

Although April 2026 sounds a while away, preparation takes time, especially if your bookkeeping isn’t up to date or your systems aren’t yet digital.

Getting organised early will save last-minute stress and ensure you’re ready to file confidently (and compliantly).

5 Practical Steps to Take Now

1. Check if You’ll Be Affected

Add up your total gross self-employed and property income (before expenses). If it’s over £50,000, MTD ITSA will apply to you from April 2026.

2. Get onto MTD-Compatible Software

Start using accounting software like Xero, which is already MTD-ready and fully supports digital record keeping.

• If you’re still using Excel or paper records, begin migrating now.

• Look for automation features that save time (e.g. bank feeds, receipt capture apps like Hubdoc).

3. Separate Personal and Business Finances

If you’re still using one bank account for both, open a dedicated business account.
It makes quarterly reporting simpler, helps you track business cashflow accurately, and reduces the risk of errors.

4. Bring Your Bookkeeping Up to Date

The biggest headache for MTD ITSA will be businesses with messy or delayed records.
Start by:

• Reconciling bank transactions weekly.

• Logging all invoices and receipts digitally.

• Reviewing your chart of accounts to ensure expenses are categorised correctly.

5. Join the HMRC Pilot (if you can)

HMRC’s MTD ITSA pilot programme is already open to certain individuals. Joining early gives you the advantage of learning the system gradually and ironing out issues before 2026.
Your accountant can help you check eligibility and handle the setup.

What Happens if You Don’t Prepare

Missing the MTD ITSA deadline could lead to:

• Filing penalties for late or inaccurate quarterly submissions.

• Disruption to your normal tax process if your records aren’t compatible.

• Increased costs for catch-up work when deadlines hit.

Preparing now means avoiding these risks and getting comfortable with digital reporting ahead of time.

How Influential Accounting Can Help

We’re already supporting clients through this transition, from selecting the right software to setting up digital bookkeeping systems and training you to use them confidently.

Whether you’re a sole trader, landlord, or freelancer, we can help you:

• Assess your MTD readiness.

• Move smoothly to Xero (with automation included).

• Stay compliant without the stress.

📩 Ready to make the switch?
Book a free discovery call today and let’s get your business MTD-ready before 2026.