The UK government’s Making Tax Digital for Income Tax (MTD IT) initiative, also known as MTD for Income Tax Self Assessment (MTD ITSA), is set to change how millions of small business owners and landlords report their earnings. Recently confirmed in the 2024 Autumn Budget, Making Tax Digital IT will be implemented gradually, eventually covering all self-employed individuals and landlords earning over £20,000 in total annual income by the end of this parliamentary term (projected to be around 2029).
As bookkeeping professionals, JG Bookkeeping is here to break down the details of Making Tax Digital IT and help you understand what you need to do to prepare. Here’s everything you need to know about this new system, key dates, and how it will impact your reporting requirements.
A Quick Overview of Making Tax Digital (MTD)
Making Tax Digital is part of a government initiative aimed at modernizing the UK tax system to be one of the most digitally advanced globally. The goal is to streamline the tax process, making it easier for taxpayers to report accurately and stay compliant.
The first phase, Making Tax Digital for VAT, began in 2019, initially covering only specific VAT-registered businesses. By April 2022, all VAT-registered businesses had to adopt digital record-keeping and use compatible software to file VAT returns electronically.
Now, the government is extending Making Tax Digital to Income Tax, which will ultimately replace the traditional Self Assessment tax return system for individuals with business or property income above specific thresholds. The roll-out is set to start in April 2026 for higher earners and will progressively expand to include more taxpayers.
How MTD for Income Tax Changes Current Reporting
Under Making Tax Digital IT, instead of submitting an annual Self Assessment tax return, you’ll need to report your business income and expenses four times per year. Additionally, you’ll submit a final declaration at the end of each tax year, confirming the accuracy of your income and expenses.
Key Changes at a Glance:
- Quarterly Updates: Every three months, you’ll submit digital summaries of your income and expenses for each type of business income (e.g., self-employment or property).
- Final Declaration: At the end of the tax year, you’ll submit a final declaration to confirm the figures, account for any personal adjustments, and finalize your tax liability.
By shifting to quarterly updates, HMRC aims to create a more efficient, accurate tax reporting process and give taxpayers a clearer picture of their tax obligations throughout the year. This change should help reduce errors and late submissions, and ultimately lower the risk of penalties for many businesses.
Who Will Be Affected and When?
Making Tax Digital IT’s implementation will occur in stages:
- April 2026: Self-employed individuals and landlords earning over £50,000 in annual income will need to comply.
- April 2027: Self-employed individuals and landlords with income over £30,000 will be required to join.
- By 2029: Those with annual income exceeding £20,000 will be included. Partnerships will be required to join MTD IT at a date still to be announced.
The government’s phased approach is intended to give taxpayers adequate time to adjust to the new system and help ease the transition.
What You’ll Need to Do Under MTD IT
If you’re a self-employed business owner or landlord affected by Making Tax Digital IT, there are three primary actions you’ll need to take starting April 2026:
- Keep Digital Records of Your Income and Expenses You’ll need to maintain detailed digital records of all your business-related income and expenses. This applies to both self-employment and property income. Starting this now will help you smoothly transition to digital record-keeping and make it easier to stay on top of quarterly reporting.
- Submit Quarterly Updates to HMRC Once you’re signed up for MTD IT, you’ll need to submit a summary of your income and expenses every three months using MTD-compatible software. JG Bookkeeping recommends using software like FreeAgent, which is recognized by HMRC and integrates with bank feeds, making it easier to manage transactions, invoices, and expenses.Quarterly Submission Deadlines:
- 7th August
- 7th November
- 7th February
- 7th May
- Complete a Final Declaration At the end of the tax year, you’ll finalize your annual income by submitting a final declaration. This declaration replaces the traditional Self Assessment tax return. During this process, you’ll confirm the details from your quarterly submissions, add any additional personal income, and account for any adjustments. As with the current Self Assessment process, the final declaration and any tax owed must be submitted by 31st January following the end of the tax year.
Benefits and Challenges of MTD IT
While MTD IT requires an adjustment to quarterly digital reporting, it does bring some advantages. For example, it gives business owners a clearer picture of their tax liabilities throughout the year, allowing for better planning. Regular updates also reduce the risk of errors or discrepancies, which can help avoid penalties.
However, the shift to digital record-keeping and quarterly submissions may feel like an added administrative burden at first. Small businesses, especially, may need to invest time in learning new software or updating processes. JG Bookkeeping is here to guide you through these changes, offering support with record-keeping, software setup, and tax compliance.
How JG Bookkeeping Can Help You Prepare for MTD IT
At JG Bookkeeping, we understand that adjusting to a new tax reporting system can be challenging. We’re here to help you implement digital record-keeping practices, select the right MTD-compatible software, and set up quarterly reporting schedules. Our team will guide you every step of the way to ensure you stay compliant with MTD IT requirements.
Preparing early is the best way to stay ahead of these changes. Reach out to JG Bookkeeping today to discuss how we can support your transition to Making Tax Digital for Income Tax. We’re here to make tax compliance as straightforward and stress-free as possible!
Let JG Bookkeeping be your trusted partner in navigating these changes. Contact us today to learn more.