Making Tax Digital For Income Tax & Self Assessment (MTDITSA) Are You Ready?
An Introduction to Making Tax Digital For Income Tax & Self Assessment (MTDITSA)
A recent survey, by Iris Software, has revealed that at least 50% of Self Employed businesses don’t feel ready for MTDITSA. In our experience, this is, possibly, a little optimistic. We’re not even sure if 50% of self employed businesses are even aware of it, so what exactly is it, and how is it likely to affect us?
Making Tax Digital as a concept, has been with us since April 2019, and introduced far stricter reporting requirements for VAT registered businesses, requiring them to submit their VAT Returns using only accredited software, as opposed to simply completing a VAT Return manually, or via the HMRC Government Gateway.
Making Tax Digital For Income Tax & Self Assessment extends this way beyond the requirements of the original directives.
MTD was only applicable to those businesses who were registered for VAT. MTDITSA widens the net considerably, and is set to eventually replace the existing Self Assessment tax system. So what are the current requirements?
Currently, taxpayers with a turnover of more than £50,000 will be required to join MTDITSA, with effect from April 2026.
This threshold drops to £30,000, with effect from April 2027, and £20,000 From April 2028.
OK, so, for the purposes of MTDITSA, what constitutes ‘Turnover’? The ‘Turnover Test’ is applied as follows:
The calculation is based on total Turnover / Gross income (not net profits).
Only income from Self Employment and property are included. These are added together to calculate qualifying income, so, for the 2026 to 2027 Tax Year, if you have £30,000 of Self Employment income, and £25,000 of Rental income, then the combined figure of £55,000 will be over the £50,000 threshold, meaning you will need to register for MTDITSA.
Where income is earned jointly, then only the individual taxpayer’s share of joint income is included.
Where the qualifying base period is not one year, the income must be apportioned on a fair basis, in order to calculate equivalent Turnover, with the obvious basis being pro rata.
HMRC will use your previous year’s figures, in order to determine whether, or not MTDITSA will apply to you.
What Is MTDITSA?
MTDITSA is due to replace the existing Self Assessment taxation system. In order to comply with the new system, if applicable, you will need to do the following:
Create digital records for all your transactions
Use specific, HMRC accredited software to submit details of your business income and expenditure on a quarterly basis.
Submit a Final Declaration, annually. This will effectively replace the existing Self Assessment Tax Return.
When Will Submissions Need To Be Made?
Unlike the current Self Assessment Tax Returns, MTDITSA Returns will need to be made quarterly, in much the same way as VAT Returns are, now. Unfortunately, submission deadlines will also be much akin to those of quarterly VAT Returns. Under existing Self Assessment regulations, our completed Self Assessment Return for the year ended 5 April is not due until the following 31 January, effectively giving us up to 9 months to do so. Under the new scheme, quarterly Returns will be due on the 7th of the following month, so, for example, the quarter ended 5 April will be due for submission by 7 May, just one month later. The quarter ended 5 July will be due by 7 August, and so on.
Reporting Other Income Sources
Quarterly Returns, under MTDITSA will only include income and expenditure from Self Employment and Rental Income, so we will, of course, still need to submit details of other income, such as bank interest, pensions and dividends.
This will be done, annually, as part of the new year end Tax Return, which you will complete once all quarterly Returns have been submitted and finalised.
Can We Claim Exemption?
MTDITSA requirements will likely come as a real culture shock to many, especially those whose current financial records are, basically, a pile of bank statements, and a big bag of receipts. We can claim exemption, but only in certain situations, where it isn’t practical to maintain and submit digital records, due to such factors as age, disability, or location, or if it is incompatible with your religious beliefs.
At the moment, the current exemption list also includes:
Partnerships
Trusts and estates.
Anyone with Power of Attorney.
Entertainers or sports people who are non UK resident, and have no other UK income.
Taxpayers with no UK National Insurance number.
Trustees of charitable trusts.
Taxpayers claiming qualifying care relief for that source of income only (for example, foster carers).
Those claiming Married Couples Allowance / Blind Persons Allowance.
Lloyds underwriters, religious ministers, distributions to shareholders in property investment trusts or participants in open ended investment companies.
Summary
MTDITSA represents a significant change in the way small businesses will report their income. Reporting requirements will be far more stringent, and deadlines effectively reduced from nine months to just one month. If you think your income might be above the MTDITSA threshold, and you’re unsure how to proceed, then we would be happy to talk it through with you, to work out the best way forward.
