Building a work list around clients who will be mandated into Making Tax Digital income tax self assessment (MTD ITSA) in 2026 is a task to start now. In the first in a series of articles, Rebecca Benneyworth sets out the steps to take first.
Identifying clients who will be mandated into MTD ITSA at the first phase from April 2026 will help you focus on the work needed to ensure that they are ready for the change. The test is essentially based on gross income from mandated sources, and the final trigger will be based on the 2024/25 tax return. But clearly, we can start work on those clients who are well above the threshold now and prepare a work schedule to ensure that they (and we) are ready for mandation.
Gross income test
The gross income test is applied to the gross income from self-employment and property (but not partnerships). Specifically, the amounts from the following boxes on the self assessment return will be added together to arrive at the gross income for the purpose of mandation:
-
Self-employment turnover (SA103F box 15, SA103S box 9, SA200 box 3.6)
-
Self-employment, other income (SA103F box 16, SA103S box 10)
- UK property income (SA105 box 20, SA200 box 6.1)
- Furnished holiday letting income (SA105 box 5)
- Other UK property income on SA105 (grant of lease box 22, reverse premiums box 23)
- Foreign property income (SA106 boxes 14 and 16)
Note that where a property owner has rent-a-room income of less than their exempt amount (£7,500 or £3,750) it is not included on the tax return and is therefore not counted in the gross income calculation. Do also remember that foster care income (and income paid to shared lives carers) is now excluded from MTD, even in cases where it is declared on the tax return because qualifying care relief only covers part of the income.
Next steps
Once you have a list of likely candidates for mandation, your next step will be to analyse the accounting records prepared by the client and identify what steps will be necessary to bring the client into MTD. You will need to think about each client individually, taking into account the current state of record-keeping and what the client is likely to be able to cope with doing themselves as opposed to paying for external bookkeeping support. Decisions about whether your firm will bring bookkeeping in-house or outsource this are needed now, alongside how this service is to be priced and who (within the firm) will be responsible for delivering the service. This may involve decisions about recruitment, training and managerial responsibility to ensure that you are geared up for the workload. The likely alternatives clients will be facing are:
| Client category |
Actions |
| Competently using software to keep digital records and that software will be MTD compliant. |
|
| Competently using software to keep digital records but software is unlikely to be MTD compliant. |
|
|
Competently using spreadsheets to keep accounting records. |
|
| Using technology but record keeping is inaccurate / chaotic and requires a lot of corrective work. |
|
| Not using technology but not resistant. |
|
| Not using technology and resistant. |
|
Summary
Although inevitably the list will change over the next 12 months or so, starting now with the obvious clients will enable you to get ahead of preparations, leaving less to do in the summer and autumn of 2025.
Author
Rebecca Benneyworth MBE, BSc, FCA, sole practitioner, tax speaker, writer, consultant and chair of the Tax Faculty’s Technical and Oversight Committee.
