Making Tax Digital for Income Tax (MTD ITSA): Your Essential Guide with Taxd

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) is a new HMRC system transforming how self-employed individuals and landlords report their income. It requires digital record-keeping and quarterly reporting, marking a significant shift from the annual Self Assessment system. At Taxd, we're here to help you understand if and when you need to comply with MTD ITSA, ensuring a smooth transition to digital tax filing.

Who Needs to Use MTD ITSA?

You'll need to use MTD ITSA if you are:

• A sole trader or landlord registered for Self Assessment.
• Receiving income from self-employment or property, or both.
• Your qualifying income is more than £20,000.

Qualifying income refers to the total gross income from all sole trader and property businesses before expenses. Other income, such as PAYE or dividends, does not count towards this threshold.

MTD ITSA Phased Rollout: Key Dates & Income Thresholds

The mandatory start date for MTD ITSA depends on your qualifying income (gross):

• Over £50,000: Mandatory from April 2026.
• £30,000 – £50,000: Mandatory from April 2027.
• £20,000 – £30,000: Likely from April 2028.
• Under £20,000: Not yet mandated (to be confirmed).

Important: You don't need to use MTD ITSA until after you've submitted your first Self Assessment tax return, but you can choose to sign up early!

What Do You Need to Do for MTD ITSA?

Complying with MTD ITSA involves three key steps:

1. Submit Quarterly Updates: You'll need to send summaries of your income and expenses to HMRC every quarter. No tax is calculated at this stage, only totals for income and expense categories. If you have multiple businesses (e.g., a sole trader business and a rental property), you'll need one update per business, potentially leading to 8 submissions per year.

   Quarter	Period	Deadline
   Q1	6 April – 5 July	7 August
   Q2	6 July – 5 Oct	7 November
   Q3	6 Oct – 5 Jan	7 February
   Q4	6 Jan – 5 April	7 May

2. Keep Digital Records: You must record all your income and expenses using MTD-compatible software. This can be simplified to "3-line reporting" (just income/expenses) if your income is under the VAT threshold. HMRC will not offer a free online submission tool for MTD; you'll need commercial software like Taxd.

3. Final Submission by 31 January: Similar to the current Self Assessment process, you'll make a final submission by 31 January following the tax year. This will include adjustments for tax rules, additional income (like savings or dividends), and any allowances. Payments still happen once a year, unless you choose to pay earlier.

Penalties for Non-Compliance

Missing MTD ITSA deadlines can lead to penalties:

• Penalty Points: You'll receive one penalty point for each missed quarterly update.
• Fines: Once you accumulate 4 points, you'll receive a £200 fine, with further £200 fines for subsequent missed submissions.
• Point Expiry: Points expire after 24 months.
• Late Payment: Standard late payment interest and penalties apply if you don't pay your tax on time.

Who is Exempt from MTD ITSA?

You do not need to use MTD ITSA if:

• You meet specific automatic exemption conditions.
• You have an approved exemption application from HMRC.
• Your qualifying income is £20,000 or less.

If exempt, you'll continue to file a traditional Self Assessment tax return.

Special Cases: Overseas & Non-Residents

• Inability to Engage Digitally: If you genuinely cannot engage digitally due to age, disability, or remote location, you may apply for an exemption.
• No UK National Insurance Number (NINo): You are automatically exempt from MTD ITSA in a given tax year if you do not have a UK National Insurance number by 31 January before that tax year.
• Non-Resident Landlords: Non-resident landlords with UK property are still included if they meet the income threshold and have a UK NINo.

Joint Property Owners

If you own rental property with someone else:

• You only report your share of income and must keep a clear record of your ownership percentage.
• You can choose to submit expenses annually instead of quarterly.
• Each joint owner must submit their own MTD quarterly update of income.

How Taxd Helps You Comply with MTD ITSA

Taxd is a leading digital tax filing tool designed to simplify Self Assessment and MTD ITSA compliance for individuals and businesses across the UK.

With Taxd, you can:

• Seamlessly track income and expenses in real-time.
• Effortlessly submit quarterly updates to HMRC.
• Stay compliant with the latest MTD regulations and avoid penalties.
• Improve cash flow tracking by monitoring income and expenses year-round.
• Reduce errors and missed claims with real-time digital records.
• Save time as our software can connect with bank accounts and streamline submissions.

Are you ready for MTD? If you're already using Taxd, you're good to go! We're constantly developing features to make MTD even easier, including bank account integration for automatic data pulling or simple bank statement uploads. We also offer bridging software if you prefer to use a spreadsheet for your records.

Our Recommendations to You

1. Set Up a Dedicated Bank Account: Open a separate bank account exclusively for your business or rental income and expenses. This keeps finances separate, simplifies record-keeping, and makes connecting with software like Taxd much easier.
2. Start Keeping Digital Records Now: Even if MTD ITSA isn't mandatory for you yet, begin practising digital record-keeping using a spreadsheet or MTD-compatible software. This builds good habits and helps you spot any gaps in your records.
3. Track Key Dates: Understand when you may be mandated to file quarterly updates and know when all submissions (quarterly and final) are due.
4. Get Support Early: Our team is here to help you navigate MTD ITSA. Get in touch for webinars, articles, videos, email support, or even a 1-to-1 advisory call.

Don't wait! Get ahead of MTD ITSA. Sign up for Taxd today and experience hassle-free digital tax filing.