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Who
“Qualifying income” means sole trade and property income before the deduction of expenses. This will be based on the 2024/25 self-assessment tax returns due for submission by 31 January 2026
For now, sole traders and landlords with turnover under £20k will not need to comply with MTD ITSA and will remain under the current self-assessment regime.
Similarly, partnerships are not yet in the scope of MTD IT, but are intended to be brought in “at a later date”.
MTD IT does not apply to Limited Companies, although we would expect MTD CT to be brought in at some point.
What
MTD ITSA (now shorted to MTD IT) is “Making Tax Digital for Income Tax & Self-Assessment”. This is the biggest change to the tax regime since Self Assessment came in, in 1994.
MTD IT will apply to self-employed individuals and landlords with “gross qualifying income” of more than £20k.
There are three key components to MTD IT
- Digital Record Keeping (this means MTD compliant software)
- Quarterly updates (think of it as 4 mini tax returns) **
- The ” Final Declaration” which is a year end Summary process (this replaces the current Self-Assessment Tax Return)
The tax payment dates of 31 January and 31 July are not expected to change
** A separate quarterly update will be needed for each trade or property business – so a sole trader who also rents out property would need to make 8 quarterly returns each year **
When
- Phase 1: from April 2026 – those with Gross Qualifying Income of more than £50k
- Phase 2: from April 2027 – those with Gross Qualifying Income of more than £30k
- Phase 3: from April 2028 – those with Gross Qualifying Income of more than £20k
By default, the quarters will follow the tax year. Updates must be filed by the 7th of the month following the quarter end. So the first quarter is 6 April to 5 July, to be submitted by 7 August. Taxpayers can however opt for “calendar quarters” resulting in the first quarter being 1 April to 30 June, due for submission by 7 August.
If you are a VAT registered sole trader with VAT quarters that do not match the above, you may wish to consider altering your VAT quarters to as to avoid the need to complete 8 returns per year.
How
Taxpayers whose income meets the relevant thresholds will need to sign up for MTD IT in much the same way as you originally registered for Self-Assessment
The good news is that we will be able to do this for you.
The sign-up facility is now live.
HMRC will write to potentially in scope tax payers in April and May 2025. These letter will go to those who have relevant income over £50k or close to it, based on their 2023/24 tax returns.
HMRC will only know for certain if someone is in scope when the 2024/25 tax return is submitted.
It is important that the business has a separate bank account, and that any non-business transactions going through that account are minimised.
Please note that the HMRC free tax return “software” will cease to be available to anyone reporting through MTD.
(updated April 2025)
MTD Solutions
We Are Offering the Following MTD Solutions:
Stay ahead of the curve with our tailored Making Tax Digital (MTD) services. Whether you are a sole trader or a landlord, we provide end-to-end support to help you comply with MTD for Income Tax Self Assessment (MTD IT). Our solutions are designed to make digital tax reporting simple, accurate, and stress-free.
Our MTD Services Include:
- Digital record-keeping setup and support
- MTD-compliant software integration
- Quarterly submissions to HMRC
- Personalised training and guidance
- Ongoing compliance monitoring and assistance
Software options
- Sage Self Employed (Accounting – Individual)
Ideal for non-VAT registered sole traders
Click here for more details, or watch the demo video.
2. Xero
We recommend Xero for more complex businesses.
MTD for ITSA functionality will be available across the full range of Xero products
There are a selection of plans priced at different levels designed to meet the requirements of different businesses. All pricing plans cover the accounting essentials, with room to grow.
The Xero Ignite plan provides accounting basics to help simplify business admin for the self-employed and businesses that are starting out.
The Xero Grow plan offers streamlined accounting tools to help automate admin for self-employed and growing businesses. It includes payroll and expenses for one person a month. It also includes up to five bill payments (GBP only) per month, plus a small additional fee per additional bill payment.
The Xero Comprehensive plan includes streamlined accounting and payroll for businesses with employees so they have the info they need to help make confident decisions. It includes payroll and expenses for up to five people a month, multi-currency, advanced cash flow predictions (Analytics Plus), up to 10 bill payments (GBP only) per month plus a small fee per additional bill payment.
Current pricing plans can be found here.
3. Hammock
This software is designed specifically for landlords.
One area of complexity with MTD IT is property income, particularly if properties are owned jointly. HMRC Deem property income to be non-trading and therefore prefer not to set up partnerships that would be recognised as such for Income Tax and MTD IT (VAT is an exception!)
We refer to such partnerships as “notional partnerships”. These notional partnerships will often have one set of income and expenditure, which is then declared 50:50 (for example) on the two individuals’ tax returns as Property Income.
Hammock is uniquely set up to be able to deal with the MTD disclosure for each individual.
More details can be found here
Contact Us for best advice.
