The start date for MTD ITSA has been delayed several times but a . In December 2022, a firm start date of April 2026 for  some businessessole traders and landlords has now been set.   was announced but a start  date for partnerships is yet to be decided. The start of MTD ITSA will be spread over two years and depends on your business’s turnover. If you’re a sole trader or landlord with total business or property income over £50,000 per year, MTD ITSA will apply to you from April 2026, and a year laterApril 2027 for those with annual turnover exceeding £30,000. While partnerships won’t be included in MTD ITSA until later, there are steps that can be taken to prepare for the changes.  

MTD: OVERVIEW

What is MTD? 

In 2014 the government announced its intention to “make tax digital” (MTD). In 2015 it published a “road map” setting out the reasons for MTD and how HMRC intended to implement it. The main aims of MTD are to: 

• reduce or eliminate reliance on paper documents 

• improve tax-related record keeping by businesses and individuals 

• make reporting of tax information more frequent and more timely. 

The aims are clearly intended to improve compliance and make it easier for HMRC to keep track of and check taxpayers’ records.  

The MTD regime can be broken down as follows: 

• MTD for VAT (MTDfV) - fully implemented 

• MTD for Income Tax Self-Assessment (MTD ITSA) - starts 6 April 2026 fully implemented 6 April 2027 

• MTD for partnerships - start date yet to be announced 

• MTD for corporation tax - start date yet to be announced. 

 

What’s the timetable for MTD? 

The first step towards MTD was MTDfV. This began in April 2019 and was phased in and fully implemented by April 2022. The next stage is MTD ITSA. This has been delayed several times and will now apply from April 2026, but not for everyone who completes an income tax self-assessment return. For example, partnerships are excluded from the initial round of MTD ITSA. As of January 2025, no date has been set for when MTD will apply to partnerships.  

The final stage for MTD will be MTD for corporation tax (MTD CT). This too has been delayed until further notice and it now seems certain that it won’t be implemented until after MTD ITSA is up and running. No firm date for MTD CT has been set.  

For HMRC’s most recent consultation (November 2021) on MTD for CT, visit https://tinyurl.com/5n8tzw5k 

 

Who will MTD ITSA apply to and when? 

 

For sole traders and landlords whose qualifying annual turnover is greater than £50,000, and are not exempt, reporting will begin for the first MTD ITSA quarter-end after 6 April 2026. This will be either the quarter ended 5 July or 30 June 2026 depending on which you opt for. Businesses and landlords with turnover between £30,000 and £50,000 will come within MTD ITSA from 6 April 2027 and make their first reports for the quarter to 5 July or 30 June 2027.  

The are special rules about the timing of MTD ITSA for new businesses.

 

Where can I find the legislation and HMRC documents on MTD ITSA? 

[For the MTD ITSA legislation, visit https://tinyurl.com/2y67zzr8, https://tinyurl.com/ju7rwfkd, https://tinyurl.com/2pzmw5vp and https://tinyurl.com/3ev5nzhx. For HMRC guidance on when to use MTD ITSA, see https://tinyurl.com/2wrzxbza and https://tinyurl.com/sn8r2hwh. 

MTD ITSA BASICS

Will MTD ITSA apply to me? 

As a business owner or landlord, to determine if MTD ITSA will apply to you the first step is to consider the following: 

• business structure - whether you’re a sole trader, in a business partnership or a landlord 

• business or rental income - whether your turnover reaches either of the MTD ITSA limits 

• your mix of relevant income - if you have more than one source of income relevant for MTD ITSA.  

 

When will MTD ITSA apply to me? 

The MTD ITSA start date, which applies across the UK, depends on your business structure: 

• sole traders with qualifying income above £50,000 per year must join from 6 April 2026 

• individuals who are landlords with qualifying income above £50,000 per year join from 6 April 2026 

• sole traders with qualifying income above £30,000 per year join from 6 April 2027, unless they have already adopted MTD ITSA 

• individual landlords with qualifying income above £30,000 per year join from 6 April 2027, unless they have already adopted MTD ITSA 

• a date is yet to be set for general or other types of partnership (except mixed partnerships) but it will not be before 6 April 2028. A mixed partnership is one where one or more of the partners is a company or other organisation liable to corporation tax. 

In late 2022 HMRC started consultation with accountants, business owners and landlords with annual MTD ITSA qualifying income of £30,000 or less. The conclusion, published in February 2024, is that MTD ITSA will not apply to such businesses. The consultation and conclusions are available at https://tinyurl.com/yuju94jb. 

Note. There are special rules about the timing of MTD ITSA for new businesses, see Section 6.3. 

The turnover limit is per taxpayer and not per business. Therefore, if you have a mix of trading and property income and the combined turnover is over £50,000 per year, MTD ITSA applies from April 2026. Or if the qualifying income is more than £30,000 MTD ITSA will apply from April 2027. 

 

How do MTD ITSA requirements differ from those for VAT? 

If you’re already in MTDfV, the concept of quarterly digital submissions to HMRC is something you’re used to. But don’t assume that means you’re automatically ready for MTD ITSA.  

There are differences between the two in terms of what you need to record, and what and when you need to submit to HMRC. However, most bookkeeping software if not compliant now will be upgraded to meet MTD ITSA requirements by April 2026. For example, problems could arise where your VAT quarters don’t match your MTD ITSA quarters or if you keep your records for VAT using the accruals basis but use the cash basis for income tax accounting. You may want to consider look at aligning your record-keeping method, so that the same basis, cash or accruals, is used for both VAT and income tax. 

Don’t assume your current software will meet MTD ITSA requirements. Check with the software company. There are now many compliant bookkeeping and accounting apps available. HMRC maintains a current list of these at https://tinyurl.com/nazasepj 

 

How will MTD ITSA change self-assessment reporting? 

 

If you use MTD ITSA, the self-assessment process will be different for you. Primarily, there will be no need to report your business income, profits and losses for a tax year on a self-assessment tax return as the information will have been provided in your quarterly MTD ITSA reports. However, you will, of course, need to report all other taxable income, e.g. from savings, dividends and employment, to HMRC. Under MTD ITSA there are two ways to do this: 

• you can report it at the same time as your quarterly reports (some but not all MTD ITSA software will allow this); or if not 

• you must report it with or before making your MTD ITSA final declaration. 

If your software does not allow you to report other income you will be able to submit the information to HMRC through your HMRC online business services account. If you don’t have one already, you will be required to sign up for one when you register for MTD ITSA.  

The second (final) step of reporting your income to HMRC replaces the self-assessment tax return. You still need to make a final declaration even if you have no personal income sources. You will need to do this using the software which you used to make your quarterly reports. 

The final declaration has the same deadline as a normal self-assessment; 31 January following the end of the tax year for which it’s made. For example, the deadline for the final declaration for 2026/27 is 31 January 2028. A late submission penalty, similar to that for self-assessment returns, will apply if your final declaration is late. 

Note that the payment dates for your self-assessment/MTD ITSA bills won’t change. Payments are due on 31 January and 31 July each year. 

 

What is the annual MTD ITSA routine?  

Originally, the rules required businesses and landlords within the MTD ITSA regime to submit reports of their business income and expenses to HMRC every three months plus a summary report after the end of their accounting period (the end of period statement). These rules have been amended.  

After feedback from accountants and other stakeholders, changes to the original rules were announced in late 2022 and became law in 2024. The main change was that the requirement of an “end of period statement”, essentially a summary of the quarterly reports, was dropped. Below is an outline of the MTD ITSA process: 

1. Quarterly submissions 

• with MTD ITSA, you make a submission of business income and expenses to HMRC each quarter 

• quarters are fixed, but there are two options for when each quarter ended 

• submissions must be made online using MTD-compatible software. 

2. Estimated tax calculation 

• after each submission of your quarterly report, HMRC provides an estimated tax calculation through your software based on the information you provided. 

We don’t yet know how HMRC will calculate the quarterly estimate. It is likely to be fairly inaccurate for several reasons, e.g. if you have significant other income, your business is seasonal, especially in the early days of MTD ITSA. 

3. End of year finalisation 

The final declaration: 

• must be submitted to HMRC no later than 31 January following the end of each tax year 

• it replaces the self-assessment tax return 

• is used to make claims and elections, e.g. for loss relief 

• includes details of any other income you have in addition to trading and property income, if this hasn’t been submitted during the year. 

After you have submitted your fourth quarterly update, your software will show your income and expenses for the whole of the tax year, for each business that you have. You need to review the figures and make any adjustments needed. These might be adjustments for accounting purposes or purely for tax purposes.  For example, adjustments can be for: 

• individual transactions, say to correct an entry posted in the wrong amount or under the wrong heading (these have an effect for accounting and tax purposes)  

• meeting accounting standards, such as adjusting to add or remove accruals of expenses and prepayments of income (these are needed to make cash accounts into accounts prepared on the accruals basis and vice versa) 

• removing disallowable expenses (this is for tax purposes only) 

• claiming reliefs or allowances, such as the rent-a-room relief or capital allowances (this is for tax purposes only) 

• elections, such as using the trading income allowance instead of deducting your expenses (this is for tax purposes only). 

 

Are there advantages to MTD ITSA? 

HMRC publicity is big on the advantages of MTD for businesses. It says it will transform tax administration across the board, so it’s more effective, more efficient and makes it easier for you to get your tax right. It says the move to MTD means you get your time freed up to concentrate on the nitty gritty of running your business. That’s the propaganda. Ultimately, businesses which keep their records ad hoc will find the conversion to MTD time consuming but will get at least some of the benefits HMRC suggests once they are fully au fait with MTD ITSA. 

The cash basis applies by default to unincorporated businesses from April 2024. However, you can elect to use the accruals basis instead (also known as the earnings basis), see Section 2.1. If you use the cash basis for income tax accounting you can opt to use the cash basis for VAT but note that a turnover limit applies for the VAT election. More information about this is available at https://www.gov.uk/vat-cash-accounting-scheme. 

Under the current system you can leave much of the bookkeeping and preparing your annual accounts until the year end and then sort out the records. With MTD, you need to produce figures at least once every three months.  

 

What’s in it for HMRC? 

HMRC expects that cutting out paper-based processes and transacting online instead will reduce the chance of accidental mistakes: keying errors and miscalculations, for example. At the moment, what it calls “avoidable mistakes” cost the Exchequer around £8.5 billion per year.  

Whether or not MTD ITSA brings the advantages HMRC anticipates, it’s a game changer. Because you’re not the only one who’s going to get a real time view of your business, HMRC will too. It will have more information about your business, in real time, than ever before. With that data, it will be able to form expectations about how your business should be performing, based on the trends it sees in the figures.  

MTD ITSA opens up the way for HMRC to analyse your data more easily and thoroughly. If you want to stay off HMRC’s radar, good bookkeeping is the key.  

 

What checks will HMRC make? 

MTD ITSA raises your profile with HMRC. It makes what you’re doing more obvious. And it gives HMRC the opportunity to see if the data matches other information held about you elsewhere.  

HMRC has sophisticated software for reviewing information, plus wide powers to request information from third parties, like online platforms, financial institutions who keep records of payment card transactions, and overseas authorities.  

It can investigate what it sees as data mismatches and anomalies between your online presence, lifestyle and reported income according to your MTD records. Data errors and mismatches are less likely if you maintain your records as you go along rather than sporadically or only when an MTD report becomes due. 

 

Avoiding trouble with HMRC  

Avoid gaps and unexplained discrepancies in your records. Make sure that you have systems in place before you have to use MTD ITSA from 2026 or 2027. Don’t wait until the last minute; start the process of preparing for it as soon as reasonably possible.  

If you don’t already use a bookkeeper, consider doing so unless you’re entirely comfortable and up to speed with existing MTDfV reporting requirements. Before using a bookkeeper check that they are already dealing with MTDfV reporting. That will be a good indication that they will be able to handle MTD ITSA. 

When MTD ITSA is up and running there are steps you can take to minimise the risk of HMRC attention. If you’re VAT registered, check for example that your MTDfV and MTD ITSA reports to HMRC are consistent with each other.  

HMRC uses information from its various departments, other government bodies and reports from property letting agents, to identify properties that are acquired for letting or that are already being let. It will check to see if landlords are registered for MTD ITSA. 

EXEMPTIONS FROM MTD ITSA

What MTD ITSA exemptions are there? 

There are circumstances in which you may be able to apply to be exempt from MTD ITSA even where your qualifying income would normally bring you within MTD ITSA.  

You don’t need to apply for an exemption from MTD ITSA if HMRC has already confirmed you’re exempt from MTDfV. You are automatically exempt from MTD ITSA, too. 

The criteria for exemption are very limited. HMRC will consider applications for the following reasons: 

• it’s not reasonable or practical for you to use computers or the internet due to age, disability or location 

• you object to using computers on religious grounds 

• it’s not reasonable or practical for any other reason. 

To apply, you need to contact HMRC setting out how these reasons apply in your individual circumstances.  

The whole premise of MTD is that most people are capable of joining, so you’ll have to be very specific if you think you can’t. HMRC is likely to look at your tech abilities in the round - whether you use email, internet, mobile phone, computer or other devices, and base its decision accordingly. 

You should get a decision within 28 days. When your information has been reviewed, you’ll either be told you’re exempt - in which case HMRC will also tell you what you need to do next - or that you aren’t exempt. In that case, you’ll also get information on how you can appeal if you want to take the matter further. But in the meantime, you would need to sign up for MTD ITSA. 

Note. HMRC hasn’t published detailed guidance on the mechanics of how you apply for exemption yet. You should keep checking HMRC’s website for updates. The information will be available in various HMRC web pages and notices, but we suggest checking here first: https://tinyurl.com/mr45n9pw 

If your circumstances change so that the reason you got an exemption no longer applies, you must tell HMRC. You have to do this within three months of ceasing to be required to use MTD ITSA. 

 

Examples of when exemption might apply 

Good case. Zac is an author. He lives in a remote rented property with no mains electricity, no landline and no mobile coverage at the house. To get a phone signal, he drives three miles and climbs a hill on foot. He should have a good case to apply for an exemption to HMRC on the grounds of location. 

Borderline case. Julia has taken early retirement and lives with a daughter and wider family in Kent. She runs a small business, making curtains which her granddaughter markets for her. She doesn’t use a computer, and wouldn’t be able to get to grips with a spreadsheet, but she does keep in touch with friends, using a mobile phone, with input from her family. Her application for a digital exemption may be more borderline. 

 

When can I leave MTD ITSA? 

If your gross qualifying income has fallen below the annual threshold for a sufficient time or your business ceases, you can leave MTD ITSA. But because you could be on an endless entry/exit cycle if your business hovers around the threshold, you have to clock up three consecutive years of qualifying income below the MTD ITSA limits to leave. Remember, the MTD ITSA limit as it stands will be £50,000 for 2026/27 and £30,000 for 2027/28. The current government has also stated the intention to lower the limit to £20,000 by the end of its parliamentary term, i.e. by 2029.  

Example 

Q is in MTD ITSA in 2026/27 (because his previous qualifying annual income exceeded £50,000). However, his annual qualifying income is less than £50,000 in 2026/27 and less than £30,000 in 2027/28 and 2028/29. From 6 April 2030, the MTD ITSA rules won’t apply to him (unless the limit is lowered by this date). 

 

Is there a way to avoid or defer MTD ITSA? 

If you’re a sole trader or landlord with qualifying income that brings you within MTD ITSA you could transfer your business to a company. A date for MTD for corporation tax is yet to be set. This means it is unlikely to apply for two, possibly more years after 2027. 

For the same reason deferral might also be possible if you’re a sole trader or landlord and you create a partnership. The trouble with this is that it means someone else sharing in your business. However, this might not be an issue for you if you have a spouse, civil or a long-term unmarried partner.