Making Tax Digital for Income Tax: A helpful guide

Kim Baldwin • October 9, 2023

For small business owners and the self-employed, staying on top of changes to tax filing requirements is crucial. Getting the right MTD-compliant software in place and preparing ahead of time makes filing your returns and paying your taxes quick and easy, helping to manage your finances so your cash flow isn't impacted.

With Making Tax Digital (MTD), HMRC is rolling out the most significant change to the tax system in a generation. The scheme aims to digitalise the UK's tax system over the next few years. MTD for VAT rolled out for businesses with annual turnover above £85,000 from April 2019 and extended to all VAT-registered businesses, regardless of turnover, from April 2022.

 

Next in line: MTD for Income Tax (MTD for ITSA)

The programme is set to significantly change how some of those registered for Self-Assessment file their taxes. This article tells you everything you need to know about the new Making Tax Digital Self-Assessment scheme, from what it is and who it affects to how to sign up and what software you'll need.

 

 

What are the changes to Making Tax Digital for Income Tax Self-Assessment?

For eligible people, the MTD for Income Tax Self-Assessment (ITSA) will replace the current requirement to file an annual Self-Assessment tax return. Instead, you'll use software to keep digital records and file updates at least every quarter via MTD-compatible software to HMRC.

 

MTD for Income Tax is set to roll out from April 2026 and will cover all unincorporated businesses (sole traders) and landlord's annual business and/or rental income over £50,000.

 

Businesses with an income between £30,000-£50,000 have until April 2027. If your income is below £30,000, you can continue using the existing Self-Assessment system. However, the government is implementing plans on how MTD can best be used for these smaller businesses.

 

The government aims to increase the accuracy of the returns with this new system, making it easier to get taxes right and saving time and money - for both HMRC and the individuals and businesses affected.

 

 

Under MTD for ITSA, you'll be required to:

 

  • Keep digital records, use compatible software to submit quarterly information to HMRC, or use bridging software to connect spreadsheets.
  • Report your financial data to HMRC at least every quarter.
  • Finalise your taxes at the end of your accounting period and submit a final declaration.

 

The scheme is called Making Tax Digital for Income Tax Self-Assessment, or MTD for ITSA. You can find out more by emailing hello@bync.co.uk.

 

 

How to sign up for Making Tax Digital for Income Tax Self-Assessment

If you're eligible for MTD Income Tax Self-Assessment, you must sign up with HMRC before the scheme becomes mandated in April 2026 for incomes over £50,000 and April 2027 for incomes over £30,000.

 

Before you can sign up, you'll need the following information:

 

  • Your business name and start date
  • Your email address
  • Your accounting period and accounting type (e.g., cash or standard accounting)
  • Your National Insurance numbers
  • The Government Gateway user ID and password that you use to file Self-Assessment tax returns

 


Once you have all your information, you're ready to sign up. The first thing you need to do is get HMRC-recognised functional compatible software. We can help; please email hello@bync.co.uk for more information or to find out more about Maxing Tax Digital.

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