Introduction

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) marks a significant change in how self-employed individuals and landlords in the UK manage and report their tax obligations. The initiative, part of HMRC’s broader Making Tax Digital programme, aims to modernise the tax system, making it more efficient and accurate, by requiring digital record keeping and more frequent reporting. While this move has been long in development, the first phase goes live from April 2026 and will affect a substantial number of taxpayers.

What is MTD ITSA?

At its core, MTD ITSA requires those within its scope to keep digital records of all business income and expenditure. These records must include specific details such as the amount, category, and date of each transaction. These details will feed into quarterly submissions to HMRC, summarising income and expenses. These updates are not tax returns as such, but form part of a wider reporting process. Then, at the end of the tax year, individuals must submit a final declaration to confirm the overall income, make any necessary adjustments, and account for other income sources not already reported.

Perhaps the most important technical requirement of MTD ITSA is that all this data must be transmitted digitally. This means information must move between systems using so-called ‘digital links’: manual data entry, copying and pasting, or rekeying data from spreadsheets into software is not permitted under MTD rules. This change is intended to reduce errors and increase efficiency, but it does mean that those affected will need to use compatible software to comply.

Implementation timeline

The implementation will be phased based on income. Those with combined gross trading and property income of:

• over £50,000: Mandatory from 6 April 2026
• over £30,000: Mandatory from 6 April 2027
• over £20,000: Mandatory from 6 April 2028.

The government is currently consulting as to when and if smaller businesses (income below £20,000) will join.

Gross income will be assessed based on the tax return submitted for the year prior to implementation – for example, the 2024/25 return will determine MTD status for 2026.

Exempting and deferring certain groups from MTD

Exemptions exist for individuals without a National Insurance number, certain trustees, and those who are digitally excluded due to age, disability or remoteness.

The following groups will not be required to use MTD for Income Tax (subject to notifying and satisfying HMRC that they are exempt):

• customers who have a Power of Attorney
• non-UK resident foreign entertainers and sportspeople who have no other income sources that count as qualifying income for MTD
• customers for whom HMRC cannot provide a digital service.

In order to prioritise successful delivery of MTD, the following groups will not be currently required to join MTD:

• ministers of religion 
• Lloyd’s Underwriters
• recipients of the Married Couples’ Allowance 
• recipients of the Blind Persons’ Allowance. 

Additionally, individuals who are required to submit information using the SA109 schedule will not need to comply with MTD until April 2027. HMRC is working with stakeholders to finalise the design of a one-year deferral for this group. This extra time is intended to allow for the integration of the government’s forthcoming changes to the taxation of non-UK domiciled individuals into the MTD framework.

The process for applying for exemption is not yet finalised but is expected to be confirmed later in the year.

Prepare your practice

In preparation, taxpayers and agents are encouraged to familiarise themselves with the rules and requirements. It’s important to assess which clients will be affected, and when, and also consider if any qualify for exemption.

Client segmentation will be an important part of practice preparation. Identifying those with income over the relevant thresholds, and whether they are already using digital tools, will help agents understand the level of support each client will require. Some may need only light-touch assistance, such as help with the final year-end declaration, while others may need comprehensive support with record keeping, quarterly submissions, and software use.

A key part of the transition will involve encouraging clients to improve their record keeping habits. Moving clients from paper to digital – even if that means starting with simple spreadsheets – will ease the eventual shift to full digital compliance.

It is also advisable for clients to separate their business and personal finances by using a dedicated business bank account. Many software options support bank feeds, simplifying the import and categorisation of transactions and reducing the chance of missed or misreported items. However, users need to be careful to avoid duplicate entries – for example, if both bank transactions and supplier invoices are entered without matching them properly.

Submission dates

From a practice management perspective, MTD will introduce a new compliance calendar. Quarterly update deadlines fall on 7 August, 7 November, 7 February and 7 May. These dates will sit alongside the existing self-assessment deadlines and create new peaks in workload, especially the February update, which lands just days after the 31 January filing deadline. Practices will need to plan accordingly, assessing whether they have the necessary staffing levels and capacity to absorb this increased volume of compliance work. It may also affect how many new clients they can take on in coming years.

Sign-up

Agents must also prepare to manage the client sign-up process. HMRC will not automatically enrol those in scope. Each client will need to be signed up individually, and even clients already signed up for MTD for VAT will need to be registered separately for MTD for Income Tax. Sign-up is expected to open shortly, so firms should begin planning how they will manage this process in a timely way.

An Agent Services Account (ASA) will be necessary to access MTD services, and firms that have not yet created one should do so without delay. Most firms will already have an ASA from MTD for VAT or Trust Registration Service submissions, but they must ensure it is correctly linked to their Government Gateway accounts to maintain existing client authorisations.

Software

Software readiness is another crucial consideration. HMRC maintains a list of MTD-compatible software, and agents should review this to ensure their current provider supports MTD ITSA, particularly the features needed for multiple businesses, digital links, and categorisation of income and expenses. Bridging software may still play a role for clients with basic systems, but full software solutions will offer a more futureproof option.

Engagement letters

Alongside these practical steps, engagement letters and fee structures will need to be updated to reflect the new scope of services and increased compliance burden. Clients should be made aware of these changes well in advance, especially where additional fees will be incurred due to more frequent reporting or digital record keeping support.

A new MTD for income tax schedule has been published by the Joint Professional Bodies Engagement Letters Working Party (AAT, ACCA, ATT, CIOT and STEP) and is available below. This schedule can be used by members with clients who must comply with the requirements of MTD for income tax and in relevant cases is to be used instead of the existing Personal Tax – Sole Traders and Property Income schedule included in the main engagement letter guidance.

PCRT interim guidance 

A Professional Conduct in Relation to Taxation (PCRT) working group has been established to draft topical guidance covering the application of PCRT to the requirements of MTD for Income Tax. Please note that the PCRT bodies have published this as interim guidance which is expected to be an iterative process with future updates made to the guidance document as necessary in liaison with HMRC and interested parties.

This interim guidance is relevant to a member who is in a firm providing any service that contributes directly or indirectly to the preparation, submission, agreement of or advice on any or all aspects of an individual’s digital record keeping, filing of quarterly updates and the year-end tax return under MTD for income tax.

Conclusion

Although the changes may seem daunting, especially for smaller practices or clients who rely heavily on manual systems, early planning and open communication can make the transition smoother. The year ahead is crucial for understanding the requirements, implementing systems, training staff, and supporting clients through the change. By taking action now, practices can avoid a last-minute rush and maintain the high levels of service their clients expect.

Above all, it’s essential to remember that the responsibility to sign up for MTD lies with the taxpayer or their agent – HMRC will not do this automatically. Preparing early and planning properly will not only ensure compliance but will also futureproof your practice and give your clients the confidence to meet their obligations under the new regime.

More information

For updates on MTD for ITSA we would recommend you bookmark the following pages:

Professional Conduct in Relation to Taxation (PCRT guidance on MTD ITSA)

ACCA engagement letter templates (schedule of services for MTD ITSA)

ACCA MTD hub