We’re all now used to MTD for VAT, but HMRC has been threatening the same for income tax (MTD ITSA) for years, and here – finally – it is! Continue reading for all you never wanted to know about MTD ITSA:
What is MTD ITSA?
As with VAT, the income of affected individuals will need to be reported digitally using commercial software. Reporting will be quarterly (June, September, December and March).
“Affected individuals”?!
They’re not going after everyone all at once. At first, only sole traders and landlords with qualifying income >£50,000 will be included.
What is “qualifying income”?
At the moment, it’s just two types of income:
Gross self-employment income – that’s your total revenue, not just your profits
Gross rental income – total rents before deducting any expenses
So, even if your total income is much higher than £50,000, you won’t be caught in the net unless >£50,000 of it is from self-employment and/or property rental.
What if I do have other income?
If you’re in MTD ITSA, then you will no longer submit the SA100 tax return, so your other income will need to be included in your submissions. You can choose to do this quarterly or just in the final update.
So, when does it start, and when will it affect me?
MTD ITSA goes live in 2026/27 tax year for the first group, then will be rolled out to other groups in later years. HMRC’s plan looks like this for combined sole trade and property income:
- >£50,000 starting 6th April, 2026
- >£30,000 starting 6th April, 2027
- >£20,000 starting 6th April, 2028
Are there any exceptions?
For the moment, HMRC is excluding the following groups from MTD ITSA:
Company directors
Partnerships
Pensioners, employees and anyone who doesn’t have sole trade or property income
But watch this space!
How will I know if HMRC wants me to make MTD ITSA submissions?
HMRC will notify eligible taxpayers before April 2026. Eligibility will be based on income declared in the most recent tax return.
If I have to start reporting from 2026, what does that actually involve?
Once you’re in MTD ITSA, you’ll have to:
Keep digital records of relevant financial activities using MTD-compatible software or bridging tools
Submit digital summaries every three months
Make a final End of Period Statement (EOPS) for the last quarter of the tax year, where you will confirm your figures and make any corrections
What if I make a mistake in filing, or I forget to file?
There’s some good news here. HMRC doesn’t expect you to get everything spot on perfect with every submission, so there are no penalties for making mistakes in the first three quarterly updates. However, the annual tax return (the fourth quarter submission) does need to reflect the correct income for the year because it’s going to replace your Self-Assessment Tax Return – so adjustments should be made if required.
For Self-Assessment Tax Returns, an automatic penalty is charged for late filing, but penalties for MTD ITSA will follow the points-based system already in place for MTD VAT. Those mandated to use MTD ITSA will receive one penalty point for each late filing, and totting up four points will earn you a £200 penalty.
Can I choose to join MTD ITSA even if I don’t have qualifying income?
Yes, you can join MTD ITSA voluntarily at any time.
Can Bird’s ABOS handle MTD ITS for me?
Yes, we can. Get in touch to find out how we can help.
