Making tax digital for income tax – MTD for ITSA

Making Tax Digital is often referred to as MTD, and is the digitalisation programme from the government requiring organisations to file their tax information electronically via compliant software. Following the successful roll out of MTD for VAT, the government is now extending this to MTD for ITSA – or Making Tax Digital for Income Tax Self Assessment.

If you are a sole trader or landlord, you will need to be aware of the impending change and upcoming rules and what they may mean for you.

The idea is not to make life harder for sole traders, but to provide the means to make regular submissions rather than annual ones, and in the process keep accounts more efficient and help you keep on top of your tax obligations.

The self-employed and landlords with qualifying income above £50,000 need to have MTD for ITSA compatible software in place before 6 April 2026, this is when the first phase comes into effect (having been pushed back from April 2024).

Then those with qualifying income above £30,000 will be mandated from April 2027.

You don’t have to wait though – you can also sign up voluntarily to start getting used to MTD rules and keep up to date with your upcoming tax commitments.

What are the Making Tax Digital rules for Income Tax?

Under the MTD for ITSA rules you’ll need to;

• Keep accurate records – You must keep digital records of income, expenditure and all transactions relevant to your self-employment or property business.
• Use Making Tax Digital compliant software – You must use software that is compatible with MTD for ITSA.
• Sign up for MTD for ITSA – You can do this through your Government Gateway account.
• Send your Tax information via your software to HMRC by submitting;
  • • Quarterly updates, and
    • A Final Declaration that includes all other taxable income by 31 January every year

You can get more detailed information on the rules on the HMRC website.

While the deadline might seem a little way off, if this change affects you, or will do by the appropriate date it may be prudent to start thinking about using software now, if you don’t already.

What are the benefits of using accounting software?

Accounting software and bookkeeping may at first seem like a confusing world of tax codes, VAT returns, and accounting jargon. But in reality, it’s fairly straightforward – at its basic level it’s all about recording how much money entered the business and how much money left it.

By keeping track of this information, you will be able to see, and inform HMRC, how much tax you owe.

Using accounting software will help you be more efficient in your everyday processes – ultimately saving you valuable time. The list is not exhaustive, but it will help you to;

• Automate sending invoices.
• Collect payments faster.
• Track your own costs and expenses.
• Give you valuable reports and insights into where and how your business is growing.

What should you look for when choosing accounting software?

There’s no one size fits all answer for what software to choose. All compliant software will be able to submit the appropriate information as required by HMRC by April 2026, and they will all offer the basic bookkeeping functions that ensure you are recording the minimum information you need to.

Some software gives you a variety of analysis functions giving you clearer more informed insights into where your income or costs benefit or hinder you most. Others include many functions as standard, which another package may charge for, if they even offer it. Some give you the ability to record income, costs and time within projects so you can ensure you are pricing your work correctly.

Make a list of what features or processes are important to your business. Think about things like being able to track stock. Perhaps you need to connect your accounting software with other applications such as an online marketplace like Etsy, or a payment provider like PayPal. You may be a sub-contractor and need to be able to file CIS returns.

Once you have a list of your requirements, look at the plans the providers offer – some of the entry level plans may be more than suitable for your requirements. Others may have a feature you cannot budge on which is only available on certain plans. Each different software brand provides something extra, or different to its’ competitors. The deciding factor on what’s right for you is down to identifying the processes that are the most important ones for how your business operates.

Finally…

 

If you would like some help deciding which software to choose, then at BOSS we are more than happy to have an obligation free chat with you. We can show you some of the most popular software options to get a feel for which suits you best, and whether it fits your needs.

If you are already using Xero, Sage, FreeAgent or QuickBooks accounting software but feel that you need a little help with it; maybe you want to ensure you are processing things correctly. Perhaps you want to incorporate functionality within your software which you are aware of, but don’t know how to use.

We offer training, both in person and virtually. These can be in as little as hour long segments so you don’t feel overawed – and they are available at times that suit your business – this can be at weekends or in the evening.

Just give us a call on 01462 374073 or email info@boss-limited.com and start bossing your software.