Extension to MTD for ITSA | Severn Accounting

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is introduced progressively from 6 April 2026. It will require unincorporated traders and landlords whose income is over the trigger threshold to keep digital records and submit their tax returns using compatible software. This represents one of the most significant changes to self assessment in decades, and understanding what it means for your business is essential.

The rollout is being phased, with the first cohort of businesses required to comply from April 2026. HMRC has confirmed that traders and landlords with a net profit threshold of £50,000 or more will be in the first wave. From April 2027, the threshold will lower to £30,000. Finally, from April 2028, all unincorporated businesses with turnover above £10,000 will need to comply—with limited exceptions for those over 65 or in their first year of trading.

What counts as keeping digital records?

Under MTD for ITSA, you’ll need to maintain your records in digital form throughout the year. This doesn’t necessarily mean you must abandon spreadsheets entirely, but they do need to be compatible with MTD software. The key requirement is that your records must be provided to HMRC in a structured, machine-readable format.

Your digital records should capture the same information you currently record: income, expenses, assets, and liabilities. HMRC has published detailed guidance on compatible software packages—many leading accounting applications already meet the standards. If you currently use QuickBooks, Xero, FreeAgent, or similar tools, you’re likely already compliant. The crucial point is ensuring your software can interface with HMRC’s systems through the Application Programming Interface (API).

The quarterly update requirement

One of the most practical changes under MTD for ITSA is the requirement to submit quarterly updates to HMRC during the tax year, rather than waiting until after the year-end. Each quarter, you’ll need to declare your income and expenses to date.

These aren’t full tax returns—they’re simpler digital submissions. However, accuracy is important, as they build a running record with HMRC. If your circumstances change during the year (you take on a business partner, for example, or your turnover fluctuates significantly), you’ll need to account for this in your quarterly updates.

The first quarterly update will be due within 15 days of the end of the first quarter. This does require forward planning, so it’s worth implementing robust record-keeping processes now, even before the deadline arrives.

What about the final return?

At the end of the tax year, you’ll still file a final self assessment return with HMRC, but the process is simpler because much of the work is already done through quarterly submissions. You’ll need to complete your final adjustment (for any additional reliefs, adjustments, or personal allowance claims) and submit the end-of-period statement by 31 January following the end of the tax year.

This is when you’ll also confirm your tax position and, if required, settle any tax liability or receive a refund. The final return is your opportunity to make sure everything is correct and that you’ve claimed all available reliefs—such as trading allowance (up to £1,000 for the 2024/25 tax year), work-from-home allowance, or capital allowances on equipment purchases.

Getting ready now

Even though the first mandatory deadline is April 2026, now is the time to start preparing. If you currently use spreadsheets or paper records, migrate to compatible accounting software gradually. Test your chosen software, understand how to generate reports, and establish a monthly record-keeping routine. This approach reduces the risk of scrambling when the deadline arrives.

Importantly, the phased rollout means many businesses won’t be affected until 2027 or 2028. However, understanding the requirements now allows you to make informed software choices and build sustainable habits before you’re legally required to do so.

Conclusion

MTD for ITSA is part of HMRC’s broader modernisation agenda and, whilst it represents change, it’s ultimately designed to make tax administration more efficient and transparent. Digital record-keeping, when done properly, actually simplifies year-end accounts preparation and can give you better visibility of your business finances throughout the year.

If you’re uncertain about your obligations or need guidance on implementing compliant software, now is the right time to seek support. For tailored advice, contact Severn Accounting—we’re here to help.