Making Tax Digital for Income Tax, sometimes referred to as MTD ITSA, is the extension of the UK's Making Tax Digital programme to income tax self-assessment. It requires self-employed individuals and landlords above set income thresholds to keep digital records and submit quarterly updates to HMRC, rather than filing a single annual tax return.
How Making Tax Digital for Income Tax works
Under the rules, qualifying individuals must keep digital records of income and expenses throughout the year and submit quarterly updates to HMRC using compatible software, followed by an end of period statement and a final declaration in place of the traditional annual return. The requirement is being introduced on a phased basis by income threshold. This sits alongside, but is distinct from, existing digital tax requirements such as VAT Return (MTD for VAT), and affects how practices approach year-end accounts production for affected clients, since much of the reporting now happens throughout the year rather than in a single year-end push.
How UK accountancy practices prepare for Making Tax Digital for Income Tax
- A self-employed sole trader above the qualifying income threshold moves from filing one annual self-assessment return to submitting quarterly digital updates through MTD-compatible software.
- A landlord with rental income above the threshold keeps digital records of income and expenses throughout the year, rather than compiling them once at year end.
- An accountancy practice helps clients select and set up MTD-compatible software ahead of their mandatory start date, based on the phased rollout by income level.
- A firm builds quarterly client check-ins into its calendar to support MTD for Income Tax submissions, rather than relying on a single annual client meeting before the self-assessment deadline.
How Advantage supports MTD for Income Tax readiness
Advantage's EdgeAdvisory accelerator helps accountancy practices track which clients fall under Making Tax Digital for Income Tax, when their mandatory start date applies, and the status of each client's quarterly submissions, all within Dynamics 365.
Frequently Asked Questions
Who has to comply with Making Tax Digital for Income Tax?
Self-employed individuals and landlords with qualifying income above set thresholds have to comply, with the requirement introduced on a phased basis according to income level.
How is this different from Making Tax Digital for VAT?
Making Tax Digital for VAT already requires digital record keeping and returns for VAT-registered businesses. Making Tax Digital for Income Tax extends similar digital record keeping and quarterly reporting principles to income tax self-assessment for individuals instead.
What do businesses need to do differently under MTD for Income Tax?
They need to keep digital records of income and expenses throughout the year and submit quarterly updates to HMRC through compatible software, rather than compiling everything once for a single annual self-assessment return.
