Navigating the Upcoming Changes: Making Tax Digital for Income Tax

The landscape of tax reporting in the UK is evolving. Starting from April 2026, the introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) will bring significant changes for self-employed individuals and landlords. Understanding these changes and preparing in advance will simplify the transition, help to manage the new challenges, and ensure continued compliance.

What Is Making Tax Digital for Income Tax?

Making Tax Digital (MTD) is HMRC’s initiative to modernise the UK’s tax system. While MTD for VAT has been in effect for some time, MTD for ITSA extends this digital approach to self-employed individuals and landlords. The goal is to streamline tax reporting, reduce errors, and provide a more efficient system for both taxpayers and HMRC. The result does however increase the obligations placed on individuals as it adds new deadlines, reporting obligations, and need to familiarise with new processes. All must be done to avoid falling foul of the rules and potential penalties.

Under MTD for ITSA, affected individuals will be required to:

• Maintain digital records of income and expenses.
• Submit quarterly updates to HMRC detailing income and expenses.
• Provide an End-of-Period Statement (EOPS) at the end of the tax year to finalise income and claim any allowances or reliefs.
• Make a Final Declaration, replacing the traditional Self-Assessment tax return, to confirm total income and tax due.

Who Will be Affected When?

MTD for ITSA will apply to:

Self-employed individuals and landlords with a combined annual income from these sources exceeding £50,000 from 6 April 2026.

Those with income between £30,000 and £50,000 will be brought into the scheme from April 2027.

If your total income from self-employment and property rental is below £30,000, you will not be required to comply with MTD for ITSA yet. However, it’s advisable to stay informed, as thresholds may change in the future and being preparing early will put you in the best position to meet future obligations.

Importantly, the changes are not geographically restricted meaning taxpayers with non UK self employment or property income will be within the rules.  Currently this will not impact enterprises which are operated via business entities (e.g. a partnership or a corporation) but it is possible that these changes may come, in the future.

Steps to Prepare Now

1. Assess Your Income Sources: determine if your combined income from self-employment and property rental exceeds the £30,000 threshold. If so, plan for the upcoming changes and begin preparations.
2. Transition to Digital Record-Keeping: start keeping digital records using software compatible with HMRC’s systems
3. Familiarise Yourself with Quarterly Reporting: understand the requirements for submitting quarterly updates to HMRC. This includes the information needed and the timelines for submission.
4. Consult with a Tax Professional: engage with a tax adviser to ensure your record-keeping practices align with MTD requirements. A professional can provide guidance on best practices and help you navigate any complexities.

Looking Ahead

While MTD for ITSA introduces new obligations, it also offers an opportunity to streamline your tax reporting processes. By taking proactive steps now, you can ensure compliance and potentially benefit from a more efficient system in the future.

At Ostberg Sinclair & Co, we are committed to supporting our clients through these changes. If you have any questions or need assistance in preparing for MTD for ITSA, please do not hesitate to contact us.