Making Tax Digital income tax self assessment (MTD ITSA) will apply from April 2026 to those who receive income from self-employment and/or property where, gross income from these sources combined is above a threshold of £50,000. Those with a gross income from these sources combined above a threshold of £30,000 will be mandated to join MTD ITSA from April 2027.

A review was undertaken to determine whether the self-employed and landlords with gross income below £30,000 should be mandated into MTD ITSA. For the time being, this population will not be mandated into MTD ITSA, though this is being kept under review.

The current regulations do not cover partnerships; MTD ITSA is expected to be extended to partnerships in the future, but no date has been announced.

All references in this guidance to businesses includes the self-employed and those with income from property.

The primary and secondary legislation for MTD ITSA is in place, and amendments to reflect the deferral of the mandation date and other changes will be made in early 2024. MTD notices are in draft and are expected to be published alongside the amendments to the regulations. Some of the detail will be in guidance that is not yet available. HMRC's guide for software developers is a useful source of information on details of the design.

When MTD ITSA becomes mandatory, businesses within scope will be required to:

• maintain digital accounting records in a software product or spreadsheet. Maintaining paper records will no longer meet the legislative requirements; and
• submit quarterly updates to HMRC and finalise their tax position after the end of the tax year. The quarterly updates will need to be submitted using a functional compatible software product that can access HMRC's application program interfaces (API) platform.

Businesses within scope will need to acquire a suitable commercial software product or appoint an agent to submit information to HMRC on their behalf. HMRC's paper and online self assessment (SA) tax return will remain available only to taxpayers outside the scope of MTD ITSA. For those outside MTD ITSA, the SA tax return is likely to be replaced with a new (but similar) system in due course.

MTD ITSA will not change:

• the underlying income tax rules (other than in relation to record keeping);
• the amount of detail submitted to HMRC which remains the same as the current SA tax return (although more detailed records will need to be kept and updates will need to be submitted quarterly); or
• the current filing and payment deadlines for income tax.

MTD for ITSA requirements will apply to those who receive gross income from self-employment and/or property over a certain threshold. From April 2026 those with gross income of over £50,000 will be mandated, and from April 2027 those over £30,000 will be mandated.

A review was undertaken to determine whether self-employed and landlords with gross income of less than £30,000 should be mandated into MTD ITSA. For the time being, this population will not be mandated into MTD ITSA, though this is being kept under review.

This threshold will be applied to the total turnover/gross income from all sources of self-employment and income from property. It will be applied against specific boxes on the SA return (listed below). Anything not included in these boxes will not count towards the threshold for joining MTD ITSA.

MTD ITSA requirements will not apply to:

• Partnerships (expected start date has not been announced);
• Trusts, estates, trustees of registered pension schemes and non-resident companies (not expected to be required to join for the foreseeable future);
• Taxpayers domiciled or resident outside the UK in respect of their relevant foreign income. These taxpayers will need to comply with MTD ITSA for their UK self-employment and property income;
• Taxpayers who do not have a UK national insurance number (NINO);
• Trustees of charitable trusts or the trustees of exempt unauthorised unit trusts;
• Taxpayers claiming qualifying care relief (eg, foster carers) for that source of income only;
• The underwriting business of members of Lloyds, distributions to shareholders in real estate investment trusts or distributions to participants in open-ended investment companies.

ICAEW expects that further exemptions, or more time for certain cases, may be required in due course. For example, there are practical problems with cases where the taxpayers dies or is made bankrupt during a tax year.

The first phase of MTD ITSA starts on 6 April 2026. The first quarterly updates, for the quarter 6 April to 6 July 2026, will be due on 5 August 2026. The first final declaration for the tax year 2026/27, will be due on 31 January 2028.

If a business is trading at 5 April 2025, it will be required to comply with MTD ITSA from 6 April 2026 if it exceeds the £50,000 turnover threshold in the 2024/25 tax year (ie, the decision will be based on the 2024/25 tax return due to be filed on 31 January 2026).

New businesses and those that exceed the turnover threshold for the first time will be required to comply with MTD ITSA from the start of the third tax year (ie, if a business first exceeds the turnover threshold in 2026/27, they will, unless there is late notification, be required to comply with MTD ITSA from 6 April 2029).

The start date is determined separately for each income source (each separate trade, UK property income and overseas property income).

When determining whether the turnover threshold is exceeded, if the relevant reference period is less than 12 months the qualifying income must be adjusted proportionately on a time or other just and reasonable basis.

An exemption for the digitally excluded is included in the regulations and mirrors the current exemption for MTD VAT. The exemption covers those that that do not use computers for religious reasons and those that are unable to comply because of age, disability or location (or for any another reason).

Difficult cases will arise, particularly where an individual has some basic digital skills such as being able to send emails but would not be able to cope with accounting software or a spreadsheet. There is no specific age at which the exemption applies; each case will be taken on its merits. Location covers those who cannot obtain access to broadband because of where they are located. The exemption will not apply to those who could sign up for broadband but have not done so.

HMRC is expected to issue further guidance on how to apply for exemption, in advance of MTD ITSA becoming mandatory in 2026. It will probably not be possible to apply until quite close to the start date.

The government has given an undertaking that free MTD ITSA software will be made available to businesses with the most straightforward affairs.

HMRC's working assumption is that these businesses will be those that are unincorporated, have income under the VAT threshold, and have no employees. HMRC does not expect to develop any software itself but will work with the software industry to develop free software products. Further clarification is needed on exactly what free software will be available.

The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets will be permitted. However, the spreadsheet must be either API enabled or used in combination with an MTD compatible software product so that data can be sent to and received from HMRC systems; an existing spreadsheet on its own will not be a free solution for complying with the MTD ITSA requirements. There is a requirement for digital links where a combination of software products and/or spreadsheets is used.

The regulations state that MTD ITSA functional compatible software must be able to:

• maintain digital records;
• preserve those digital records;
• provide a quarterly update; and
• provide corrections to digital records.

• Read more information from ICAEW on MTD compatible software and how to choose a suitable product

Testing of MTD ITSA started in April 2017 on a tiny scale. Testing moved from private beta to public beta in March 2018, but the number of taxpayers participating remained very small. HMRC returned the testing to private beta status in December 2021, meaning that taxpayers can only join the private beta by arrangement with their software provider.

HMRC is relaunching private beta testing in April 2024. It is expected that testing will move to public beta from April 2025.

The precise eligibility criteria to join the private beta in 2024/25 have yet to be confirmed.

The requirement to keep digital records will not mean that businesses have to scan and store invoices and receipts digitally. Businesses can continue to keep documents in paper form if they prefer, but each individual transaction (not summaries) has to be recorded and stored digitally.

HMRC would like to encourage records to be kept in as near to real time as possible. However, it will still be possible to create the digital records at quarterly intervals, using a bookkeeper or other agent if required, provided the information is entered into a digital record keeping system prior to the quarterly update being submitted.

The regulations state that the following records will need to be maintained digitally:

• the financial information included in update;
• the details of the items comprised in that information;
• the amounts and dates on which those items were received or incurred; and
• such other information as the Commissioners consider relevant to ascertaining update information as may be specified by a notice made by the Commissioners which is stated to be made further to this regulation. This includes the category into which the transaction falls. These categories are in the MTD notices and are broadly the same as those that are currently used for the full self-employment and property sections of the SA tax return (SA103F and SA105).

Individuals with income from property will be required to comply with MTD ITSA and there remains uncertainty over how the requirements will apply in practice to jointly held property and different property businesses: UK property, overseas property, UK furnished holiday lettings and EEA furnished holiday lettings.

Where a property is jointly owned, each individual will be required to keep digital records (and submit updates) for their share of income and expenditure but will be permitted to record category totals in software, rather than each individual transaction. Digital record keeping applies to an individual's property business as a whole rather than property by property. HMRC is still developing solutions for how this will work in practical terms, say with multiple properties owned in different proportions.

The regulations allow retailers to elect to keep digital records in accordance with a retail sales notice. The MTD notices allow the recording of daily gross takings rather than individual transactions (mirroring VAT).

It is not yet clear how HMRC interprets 'details of the items comprised in that information' and whether entering totals from, for example, supplier or letting agent statements will be accepted. Further exemptions covering situations where it would be impractical, impossible or unduly onerous to maintain digital records for each transaction are likely to be needed but have not been included in the regulations.

Quarterly updates will be required for standard quarters, irrespective of a business's accounting period.

The standard quarters are:

• 6 April to 5 July
• 6 July to 5 October
• 6 October to 5 January
• 6 January to 5 April

Businesses will be able to elect to report for calendar quarters:

• 1 April to 30 June
• 1 July to 30 September
• 1 October to 31 December
• 1 January to 31 March

The deadlines for quarterly updates will be 5 August, 5 November, 5 February and 5 May following the end of the relevant quarter (so those that elect for calendar quarters get an extra five days). Updates may be submitted more frequently and can be submitted up to 10 days early where the information for the quarter is known to be complete.

The information to be included in a quarterly update is set out in the MTD notices and will require totals of the amounts of income and expenses for set categories.

These categories are broadly the same as those that are currently used for the full self-employment and property sections of the SA tax return (SA103F and SA105).

Under the current SA system, businesses with annual turnover below the VAT threshold are eligible to use 'three-line accounts', meaning only income, expenses and profit/loss need to be reported. The MTD notices allow these small businesses to continue to record transactions and report only these three lines of data.

Separate quarterly updates will be required for each business. For example, an individual operating as a sole trader who also has a UK property business would need to submit eight quarterly updates a year. Income from UK property (including furnished holidays lets) is treated as a single business. Income from overseas property is treated as a single business. If a taxpayer has more than one self-employed trade a separate update is required for each trade.

The quarterly updates are a simple summary of transactions; there is no requirement to make tax and accounting adjustments as if they were full tax returns, or any expectation that such adjustments would be made. Quarterly updates do not include a declaration from the taxpayer and inaccuracy penalties do not apply.

It will be possible to resubmit quarterly updates to correct omissions, duplications, and other errors. The quarterly updates are of cumulative year to date figures and, in most cases, corrections will be made automatically when the next update is submitted.

After the fourth quarterly update has been submitted (and if necessary resubmitted) and is final, the year-end finalisation process can be completed.

The year-end finalisation process includes two steps:

1. Step one is the BSAS (business source adjustable summary). This involves the software retrieving the totals from the final quarterly update submission from HMRC systems. It is at this stage that the tax and accounting adjustments needed to adjust the quarterly update figures to the final figures for the tax year are made and submitted to HMRC. This step is done for each MTD income source. It is likely to be at this stage that adjustments to account for non-tax year accounting periods will be made but that has yet to be clarified.
2. The second step involves bringing together the information submitted through MTD ITSA with information about the taxpayer's other sources of income and details of other claims etc that form the complete SA tax return. This step will include a declaration like that on the SA return.

In some cases, it will be possible to use the same MTD ITSA software that is used for the quarterly updates to finalise the liability. In others it will be necessary or preferable to use separate tax software or the new online submission service that is being built by HMRC. Any separate tax software will need to be MTD compatible – existing XML tax software will need to be updated.

Note that this finalisation takes place in a new HMRC backend system which is separate from HMRC's current CESA system that supports SA.

The MTD ITSA regulations will allow taxpayers to stop complying with the requirements where their relevant turnover/gross income falls below the threshold or when the business ceases permanently. To avoid the possibility of taxpayers joining, exiting, and re-joining on a frequent basis as their turnover fluctuates, the requirements will cease to apply only when turnover/gross income falls below the threshold for three successive years.

For example, if a taxpayer is required to comply with MTD ITSA for 2027/28 and their turnover/gross income falls below £30,000 in the tax years 2028/29, 2029/30 and 2030/31 they will not have to comply with MTD ITSA requirements from 6 April 2032 (the start of the tax year following the finalisation date for 2030/31).

This rule is under review.

The legal position of individuals in the MTD ITSA private beta who are finalising their tax affairs for 2018/19 and subsequent years by completing the MTD end-of-year process rather than filing a self assessment return was initially unclear. Although those in the private beta are finalising their tax position when the primary legislation for MTD ITSA is on the statute book, neither the legislation or regulations are yet in force.

HMRC published (on 14 March 2018) a commissioners' direction which allows those in the MTD ITSA pilot to use relevant software to deliver information equivalent to a personal return and self assessment under sections 8 and 9, Taxes Management Act 1970. This direction provides the necessary certainty that completing the MTD for income tax end-of-year process satisfies the obligation to file a self assessment tax return.