Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) – How to Prepare

Making Tax Digital (MTD) for Income Tax Self Assessment is a major HMRC reform aimed at modernising the way individuals report income. From April 2026, anyone with more than £50,000 of combined self-employment and/or property income will be required to keep digital records and submit quarterly updates using HMRC-approved software. Lower income thresholds will follow from April 2027, bringing many more taxpayers into the system. Preparing early reduces pressure, helps avoid penalties, and provides clearer insight into your finances throughout the year.

1. Confirm whether MTD applies to you

MTD for Income Tax applies to individuals with self-employment income, property income, or a combination of both. If your total qualifying income exceeds £50,000, you will be mandated into the regime from April 2026. Where you have both trading and property income, separate digital records must be maintained, and separate quarterly updates submitted for each, before they are combined in your end-of-year tax return.

2. Move to digital record keeping early

Under MTD, income and expenses must be recorded digitally using HMRC-approved software such as Xero, QuickBooks or FreeAgent. Moving across early allows time to select the right system, become familiar with regular bookkeeping, and avoid last-minute disruption as deadlines approach.

3. Prepare for quarterly reporting

MTD replaces the single annual Self Assessment submission with quarterly updates, followed by an end of period statement. Each update must accurately reflect income and expenses for the period. HMRC will operate a points-based penalty system, meaning missed deadlines can quickly lead to fines if not managed carefully.

4. Keep digital records organised

Effective digital record keeping involves storing receipts and accounting data directly within your software. This can include scanning receipts using a mobile app, using bank feeds to import transactions automatically, and regularly categorising income and expenses. Well-maintained records reduce errors and make quarterly submissions far more straightforward.

5. Separate business and personal finances

Using a dedicated business bank account creates cleaner, more reliable data within your accounting software. Keeping personal and business transactions separate reduces the risk of mistakes and helps maintain compliance under the MTD rules.

6. Understand how amendments work

If an item is missed from a quarterly update, there is no need to resubmit it. HMRC allows adjustments to be made in the next update. The key is to maintain accurate records and ensure each reporting period is as complete as possible.

7. Check software compatibility

If you already use accounting or tax software, it is essential to confirm that it will be fully compatible with MTD for Income Tax. Not all existing systems will meet the new requirements, and switching software may be necessary well in advance of April 2026.

8. Be aware of exemptions

HMRC may grant exemptions where digital record keeping is not reasonable, such as due to age, disability, health conditions, remote location, or certain religious beliefs. Exemptions are not automatic and must be formally approved by HMRC.

9. Consider the impact if you are under CIS

If you operate within the Construction Industry Scheme, monthly CIS returns will still be required alongside MTD obligations. Some accounting software can manage both CIS and MTD reporting together, which can significantly simplify compliance.

10. Speak to your accountant early

Transitioning to MTD takes time and planning. Early discussions allow you to select appropriate software, set up digital processes correctly, and understand what is required at each reporting stage. This helps avoid unnecessary stress and ensures you remain compliant as the new rules take effect.