Key developments and practical guidance for accountants and taxpayers
As the implementation of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) approaches, ACCA’s technical team has published a series of guidance articles designed to help accountants, bookkeepers, sole traders, landlords and their agents prepare for the transition.
These articles outline the key requirements, implementation timelines, compliance obligations and practical steps that businesses and advisers should take to ensure a smooth transition to the UK's evolving digital tax regime.
The MTD for Income Tax framework
The phased introduction of MTD for ITSA will apply to sole traders and landlords according to their qualifying income levels. Individuals with qualifying income exceeding £50,000 are required to comply from April 2026. The threshold reduces to £30,000 from April 2027 and to £20,000 from April 2028. The government continues to consider how digitalisation may be extended to taxpayers below the £20,000 threshold in future.
Importantly, MTD does not change the underlying tax rules or payment dates. Instead, it changes how records are maintained and how information is reported to HMRC.
Digital record keeping at the heart of MTD
A central requirement of MTD is the maintenance of digital records. Taxpayers must keep records of business and property income and expenses in digital format and ensure information flows between systems through digital links. Manual transfer of information, such as rekeying data from spreadsheets into software, is not permitted under the MTD framework.
The reporting process consists of four quarterly updates, followed by a year-end finalisation process. Quarterly submissions provide HMRC with a summary of income and expenses, while the final declaration confirms the taxpayer's overall position and incorporates any necessary adjustments or additional sources of income.
Quarterly updates are required on a business-by-business basis so an update for each MTD-relevant business must be submitted separately. The updates are cumulative in nature – so the first will cover three months, the second six, and so on. No accounting or tax adjustments are required to the figures before sending a quarterly update.
As noted in the PCRT guidance for MTD, nil quarterly returns should not be filed where actual income and expense transactions exist for the quarter. Despite the soft-landing approach by HMRC for late submission of quarterly returns in the first year of MTD filing, incorrect returns could still incur a penalty for failure to maintain digital records.
For many taxpayers, particularly those currently relying on paper records or manual processes, this will require substantial changes to bookkeeping practices and record management.
Preparing practices and clients
A consistent message throughout our MTD guidance has been the importance of proactive planning.
By now, practitioners should have identified which clients are affected, determine when each client will fall within scope, and assess the level of support required. Client segmentation is expected to become a key planning exercise, allowing firms to distinguish between digitally capable clients and those who may need significant assistance. The first filing deadline is approaching in less than six weeks.
Firms must have reviewed their staffing levels, workflow management and service offerings. The introduction of quarterly reporting deadlines has created additional compliance obligations throughout the year, potentially altering resource requirements and fee structures.
Engagement letters should be updated to reflect new responsibilities and the increased workload associated with MTD compliance.
Client education is equally important. Firms should communicate the upcoming changes and encourage clients to adopt digital record-keeping habits, highlighting the benefits of better record keeping for their own business management.
Software selection and agent readiness
Choosing suitable MTD-compatible software is a critical component of successful implementation. Agents are advised to evaluate software based on the complexity of clients' businesses, integration capabilities, digital record-keeping functionality and compatibility with HMRC requirements. Both full accounting systems and bridging software solutions may have a role, depending on individual circumstances.
Agents must also ensure that they have the appropriate infrastructure in place, including an Agent Services Account (ASA), which is required for accessing MTD services. Existing users of MTD for VAT may already possess an ASA, but firms should verify that their accounts are correctly configured and linked.
Quarterly reporting and compliance management
The introduction of quarterly reporting represents one of the most significant operational changes for both taxpayers and advisers.
The standard quarterly reporting deadlines are 7 August, 7 November, 7 February and 7 May. These deadlines will sit alongside existing self-assessment obligations, creating additional workload peaks during the compliance cycle. Agents should be mindful that the February reporting deadline as a particular challenge because it falls shortly after the traditional 31 January Self-Assessment deadline.
To maintain compliance, taxpayers should record transactions promptly and accurately throughout the year. It is strongly advised that agents maintain or support their clients adopting real-time record keeping and making greater use of software automation features such as bank feeds, transaction categorisation and reporting tools. These capabilities can improve accuracy, reduce administrative effort and support better financial management.
Exemptions and special cases
Not all taxpayers will be required to comply with MTD for Income Tax. HMRC allowed several categories of exemption, including individuals who are digitally excluded because of age, disability or geographical circumstances. Certain trustees and taxpayers for whom HMRC cannot provide a digital service may also qualify for exemption.
Additional deferrals and exclusions apply to specific taxpayer groups (such as partnerships) while HMRC continues to refine aspects of the system. Guidance on exemption applications and eligibility continues to evolve as implementation approaches.
Recent guidance has also clarified the treatment of taxpayers who cease all self-employment or property income. Individuals who permanently cease qualifying income sources may be removed from MTD obligations after notifying HMRC and completing the necessary reporting requirements.
Looking ahead
MTD for Income Tax is not merely a technological change but a fundamental transformation in tax administration. While the transition may appear challenging, particularly for smaller businesses and practices, early preparation can significantly reduce disruption.
The coming years will require investment in systems, training, client communication and process redesign. However, the benefits include improved record accuracy, greater visibility of tax liabilities, enhanced efficiency and a more modernised approach to compliance.
Useful resources
Download ACCA'S engagement letter schedule of services for MTD
