In this blog, we explain who will be affected, what the key requirements are, and how to prepare, with practical tips to help you stay compliant and avoid unnecessary stress.
What is Making Tax Digital for ITSA and who needs to comply?
With the core aim to reduce errors, improve accuracy and move tax reporting closer to real time, MTD for ITSA is designed to modernise the tax system by requiring individuals to:
- keep digital records of income and expenses
- submit quarterly updates to HMRC using compatible software such as Xero (often alongside tools like Dext for capturing receipts)
- complete a Final Declaration at the end of the tax year instead of a traditional Self-Assessment return.
The requirement to comply with Making Tax Digital for Income Tax will be introduced in stages for individuals and those with income from property, depending on their level of qualifying income – meaning income assessed based on qualifying income, rather than profit. The current timetable for mandation is as follows:
- From 6th April 2026 - Individuals with combined self-employment and/or property income over £50,000
- From 6th April 2027 - Individuals with income over £30,000
- From 6th April 2028 - Individuals with income over £20,000
Late filing penalties in the first year of MTD
There is some good news for those joining MTD in the first year. Late filing penalties will not apply to quarterly updates during the 2026/27 tax year, giving taxpayers time to adapt to the new system. However, it’s important to note that:
- this easement does not apply to the annual filing
- the Final Declaration must still be submitted by 31 January 2028
- all quarterly updates must be submitted before the Final Declaration can be filed.
Quarterly updates are therefore still mandatory, even though penalties are relaxed initially.
Is anyone exempt from MTD for ITSA?
Some groups will not be required to comply until April 2027, including:
- recipients of trust and estate income
- individuals who use averaging adjustments (such as farmers and creative artists)
- recipients of qualifying care income
- non-UK resident foreign entertainers or sportspeople
- individuals who currently report income on the SA109 page (residence or remittance basis).
In addition, taxpayers under deputyship are exempt from MTD for Income Tax.
What do I need to do to report under MTD for ITSA?
Those mandated to report under the Making Tax Digital rules, will need to submit:
- four quarterly updates each tax year (using cumulative figures)
- a Final Declaration after the year end
Quarterly updates provide HMRC with summaries of income and expenses, but they do not replace the Final Declaration. Adjustments such as capital allowances, private use and relief claims are dealt
Here are five practical steps to help you prepare for MTD for ITSA:
1. Keep records up to date throughout the year
Recording income and expenses digitally as you go will make compliance far simpler and reduce pressure at the Final Declaration stage.
2. Use MTD-compatible software properly
Software such as Xero and Dext can help capture receipts, reconcile bank transactions and track deadlines, reducing errors and admin. Take a look at our blog on how accountancy software and AI can help with MTD.
3. Keep income streams separate
If you are self-employed and a landlord, ensure business income and rental income are recorded separately to avoid confusion later.
4. Plan ahead for Final Declaration adjustments
Quarterly updates won’t cover everything. You’ll still need to review capital purchases, business use of assets, pension contributions and reliefs.
5. Prepare early and ask for help
If your income is close to the thresholds, start preparing now. It’s far easier to adjust systems and processes early than to rush later.
How can LWA help me with my Making Tax Digital obligations?
Many of our clients have already started preparing for Making Tax Digital with our support, meaning the move to quarterly reporting and digital record-keeping is far less daunting than it might first appear.
At LWA, we work closely with individuals and those with income from property to help them understand what MTD means in practice and put the right systems in place. As Xero Gold Champion Partners and Dext experts, we can recommend suitable software, provide tailored training, and help ensure records are being kept correctly from day one.
We also offer a wide range of practical resources, including step-by-step guidance and short videos, available through our dedicated website section focused on accountancy tools and digital processes. These resources are designed to help clients feel confident using their software and meeting HMRC requirements.
In addition, we have produced a downloadable guide covering the most common MTD FAQs, explaining the rules, deadlines and reporting requirements in plain English. You can download it here.
Whether you’re preparing well in advance or need help getting started, our Accounts and Tax teams are here to support you every step of the way. If you’d like to discuss how MTD for Income Tax will affect you, or would like help getting set up, please get in touch on 0161 905 1801 in our Manchester office, or 01925 830 830 in Warrington, or you can email mail@lwaltd.com.