Making Tax Digital for ITSA

The first phase of the Making Tax Digital for ITSA scheme will be introduced from 6 April 2026. This will be one of the biggest changes to the tax system in many years as, from this date, sole traders and landlords whose total income (not profits) from self-employment and property is over £50,000 will have to report their income and expenses quarterly to HMRC using digital software. Paper records will no longer suffice for those affected.

From 6 April 2027, MTD for ITSA will be extended to those with income of over £30,000 and from 6 April 2028 to those with income over £20,000.

HMRC have been writing to taxpayers that they believe will be required to comply, based upon their 2023/24 tax returns. This will then be confirmed once your 5 April 2025 tax return has been finalised.

The quarterly returns are not mini tax returns – you will still have to submit a digital tax return to finalise your tax position for the year. This will include other sources of income such as employment income, pensions and interest on savings. They will just represent the total for each category of income and expense and will be cumulative – so updates are due for

the following periods of the tax year:

1. 6 April to 5 July (due by 7 August)

2. 6 April to 5 October (due by 7 November)

3. 6 April to 5 January (due by 7 February)

4. 6 April to 5 April (due by 7 May)

It is also possible to make a "calendar quarters election" so that the first quarter runs from 1 April to 30 June etc, which may better align with quarterly VAT returns and annual accounts.

Separate quarterly updates will be required for each trade or property business, so a sole trader who rents out property will have 8 quarterly submissions to make each year.

Therefore, it may be advisable to have a dedicated business bank account for each business to reduce the admin time required. It will also be important to get into the habit of keeping your bookkeeping up-to-date so you can easily meet the quarterly deadlines.

There will be penalties for non-compliance and certain groups are exempt such as:

• The digitally excluded e.g. due to age, disability etc.

• Recipients of married couples and blind person’s allowance

• Ministers of religion.

  
  

It is important to consider how these new requirements will affect you so that, if required, you are in position to comply from April 2026.

For more information about how these changes might impact you, contact a member of he Mitchells team.