Unless you’ve been living under a rock, you’ll definitely have heard that tax is going digital. Initially set for 2024, Making Tax Digital for Income Tax Self-Assessment has now been pushed back to April 2026, giving businesses a little more time to prepare. But don’t be fooled into thinking you can sit back and relax just yet, this change will still have a significant impact on your operations.
Here’s everything you need to know about the new timelines, requirements, and why your future self will thank you for starting now.
Making tax digital: Key dates and thresholds
The rollout of MTD ITSA will be phased in over the next few years. Here’s what you need to know about the new timelines:
April 2026: Businesses and individuals with an annual income over £50,000 will need to comply with MTD ITSA.
April 2027: The requirement will extend to those earning over £30,000 annually.
This is a shift from the initial proposal, which aimed to bring businesses earning over £10,000 into the fold much earlier. If you’re currently earning under these thresholds, you may feel like MTD doesn’t apply to you yet, but it’s still worth taking action now. With the focus on digital accounting and filing, the government is hoping to make tax reporting more efficient, reducing the burden of paperwork and human error.
What does MTD compliance look like?
MTD ITSA is all about digitising tax returns and making the process smoother for businesses, landlords, and sole traders. Under this system, you’ll need to keep digital records and submit your tax information more frequently. This might sound like a bit of a headache, but don’t panic, there are tools to help you. These include:
MTD-compliant software: If you’re already using accounting software like Xero, Sage, or similar, then good news, you’re already ahead of the curve! These systems are designed to integrate directly with HMRC, allowing for automated submissions of your quarterly updates and annual tax returns.
Bridging software: For those who are still reliant on spreadsheets for their accounting, you can use bridging software. This software acts as a link between your existing spreadsheets and HMRC’s systems, helping you stay compliant without having to switch entirely to new software.
It’s also worth noting that you can’t manually input numbers anymore. If you’ve been used to manually entering figures on your tax return, this is a big change. The new system focuses on reducing errors, which is a huge benefit. It also means there will be less room for mistakes, making it easier to stay on top of your tax obligations.
Why should you start preparing for MTD now?
You might think that since the deadline is still a couple of years away, so there’s no rush. But that’s exactly why starting now is so important. Here’s why:
Smooth transition
The sooner you start transitioning to MTD-compliant systems, the smoother the process will be when the deadline rolls around. Getting familiar with the tools now means less stress when it’s time to file.
Avoid penalties
Starting early gives you the time to iron out any issues, avoid penalties, and ensure your system works properly. If you wait until the last minute, there’s a higher risk of errors, missed deadlines, and potentially fines.
Get into good habits
MTD is all about keeping up-to-date records. By starting to practice your quarterly updates now, you’ll build better financial habits. You’ll have clearer records, better cash flow management, and ultimately, more control over your business finances. And who doesn’t want that?
The impact of MTD on sole traders and landlords
If you’re a sole trader or landlord, this is where MTD ITSA will have a significant impact. Many in this group are still working with outdated systems (if at all) and may simply hand over a box of receipts to their accountant without any kind of digital record. Under the new rules, this approach will no longer be sufficient.
If this sounds like you then don’t worry; MTD-compliant systems might feel daunting, but it’s also a great opportunity. Once you have a system in place, your record-keeping will improve. You’ll be less likely to make mistakes on your tax returns, and you might even find that your cash flow improves as you get a better understanding of your business’s financial health.
Final thoughts
The shift to MTD ITSA is happening, whether you’re ready or not. With the timeline pushed to 2026 and 2027, businesses and landlords have a bit more breathing room, but that doesn’t mean you should put off the transition. Starting now by getting your digital systems in place, practicing quarterly updates, and familiarising yourself with the new requirements, will make the transition much easier when the time comes.
Need help getting ready for making tax digital or any other aspect of your finances? Talk to our friendly team, we’d love to help.
