The Making Tax Digital initiative is now familiar territory but, much like any other new scheme, continues to evolve, and more and more taxpayers are beginning to digitalise their taxes. In the most recent update, the government announced a much-appreciated simplification of the MTD processes, which will come into effect from April 2026.
MTD ITSA Is Set To Become Simpler Than Ever
From removing EOPS to cumulative submissions each quarter and restrictions for complex situations, the most recent changes to MTD have been welcomed by taxpayers. Learn more about the updates and how these affect you below:
What Is MTD ITSA?
MTD ITSA stands for Making Tax Digital for Income Tax Self Assessment and is an initiative introduced by the government to modernise and digitalise the UK tax system. It means those required to submit self-assessment tax returns must use MTD-compatible software to keep digital records and submit their tax information digitally. As a result, the government hopes this will make the tax system more efficient, accurate, and easy to manage, meaning there will be less room for error.
What Are The Latest MTD Changes?
From April 2026, taxpayers with a turnover of more than £50,000 will be brought into MTD ITSA. This £50,000 threshold will apply to gross total self-employment and property income, meaning we will include both when determining whether MTD ITSA applies to you. Following this, from April 2027, taxpayers with a turnover over £30,000 will also be brought into MTD ITSA.
HMRC has, however, confirmed that self-employed taxpayers and landlords who turn over under £30,000 will not be brought into MTD ITSA in April 2027. Although taxpayers who fall under this category will be brought into MTD ITSA at some point in the future, the decision will be kept under review in the meantime. We will keep our clients updated with any changes regarding this.
The final update is the announcement that new MTD ITSA exceptions will be implemented for foster carers and those unable to get a national insurance number.
How Will MTD ITSA Be Simplified?
To simplify end-of-year reporting, taxpayers will no longer be required to file an end-of-period statement (EOPS) in addition to the final declaration. Instead, the EOPS will be built into the final declaration process, which will now collate all of the information that would have been reported on the EOPS, along with other data, to calculate the final tax position.
As well as changes to reporting, any quarterly updates produced under MTD ITSA will now be cumulative. This means any errors in previous quarterly submissions can be corrected in the next quarter, rather than having to go back and resubmit earlier reports.
Lastly, in our previous article, we explained the transition from accruals to cash basis. This expansion of the cash basis for calculating taxable profits, along with the above changes, should result in far simpler reporting for MTD purposes.
Making Tax Digital Support
At Digital Tax Matters, we can help you comply with the MTD regulations. We offer assistance in selecting and implementing digital accounting systems, provide training and ongoing support, conduct compliance checks, and ensure accurate quarterly reporting. Many of our clients choose to outsource their digital bookkeeping to us.
You’ll need to take three steps to prepare for the changes which come into force on the 1st of April 2026:
- Ensure you have set up and have access to your own gateway:
If you haven’t already, then you will be required to create a personal gateway as soon as possible; not only is this necessary for MTD, but it is also a useful tool to keep on top of your personal tax affairs. Your gateway will link to our agent services account and create a digital handshake, which will allow us to file the quarterly returns on your behalf. You can this link to create your personal gateway. - Use software to allow a seamless exchange of information with us:
We have conducted research across a number of software providers, and we advise the best and most efficient software to help you Comply is ‘Xero Simple’‘. This software is packed with features to assist you in complying with the upcoming changes, including a live bank feed and digital receipt-capturing app. The cost for this software is £7 per month. - Set up a separate business account for business use only (includes rental income and sole traders):
If you are currently using your personal account for business transactions, we advise you to set up a separate account for business use only. This will ensure the transactions being pulled through with the live feed capture business transactions only. This will help keep your accountancy fees as low as possible and allow us to report the quarterly figures as efficiently as possible.
Please contact us and discuss this in further detail with your account manager. You can get in touch with us as a new client or for general enquiries via 01234 357595 or [email protected].