The landscape of tax reporting is changing, and it’s crucial to be prepared.
From April 2026, Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) will require many of you to keep digital records and submit updates to HMRC quarterly. This might seem daunting, but with a bit of foresight, you can make the transition smooth and stress-free.
Let’s break it down what you need to know and how to get ready.
What is Making Tax Digital for ITSA?
Making Tax Digital (MTD) is HMRC’s initiative to modernise the tax system.
For Sole Traders and Landlords, this means you’ll need to:
- Keep digital records: Ditch the shoebox of receipts! You’ll need to use compatible software or apps to record your income and expenses,
- Submit quarterly updates: Instead of one annual Self Assessment return, you’ll submit updates every three months,
- Use compatible software: Your chosen software must be able to connect to HMRC’s systems- Xero, QuickBooks Online, and FreeAgent are the most used cloud-based accounting software that are MTD compliant and used by small businesses.
Why is it happening?
HMRC aims to reduce errors, make tax administration more efficient, and provide a clearer picture of your tax liability throughout the year. While it’s a change, it can ultimately help you manage your finances better.
Who is affected?
Initially, MTD for ITSA will apply to sole traders and landlords with a business income of more than £50,000 per year from April 2026. From April 2027, this will be expanded to include those with income over £30,000 per year. It is worth noting, that even if you are below those thresholds, getting ready early is a good idea, thresholds can change, and getting used to the software takes time.
How to Prepare:
- Understand the requirements:
- Familiarise yourself with the official HMRC guidance on MTD for ITSA. You can find detailed information on the gov.uk website.
- Choose compatible software:
- Research and select software that suits your business needs and is compatible with MTD. Consider factors like ease of use, cost, and features. Many cloud-based accounting solutions are available.
- Start digitising your records:
- Don’t wait until the last minute! Begin transitioning to digital record-keeping now. Scan receipts, record transactions electronically, and get comfortable with your chosen software.
- Get to grips with Quarterly updates:
- Familiarise yourself with the process of quarterly submissions. Many software packages help automate this process.
- Seek professional advice:
- If you’re unsure, consult with an accountant or tax advisor. They can provide personalised guidance and help you navigate the transition.
- Stay informed:
- Keep an eye on HMRC updates and announcements regarding MTD for ITSA. Regulations and deadlines can change, so staying informed is crucial.
Benefits of Going Digital:
- Reduced paperwork: Say goodbye to piles of receipts and spreadsheets.
- Improved accuracy: Digital records minimise the risk of errors.
- Real-time financial insights: Get a clearer picture of your business’s financial health.
- Simplified tax reporting: Quarterly updates can make the annual Self-assessment process less stressful.
- Time-saving: Digital automation saves time in the long run.
While MTD for ITSA might seem like a big change, taking proactive steps now will make the transition much smoother. Don’t wait until 2026! Start exploring your options, digitise your records, and get ready for the future of tax reporting. By embracing digital tools, you can streamline your financial management and focus on growing your business.
Remember to check the gov.uk website for the latest information and updates.
Why choose Barbara’s Bookkeeping?
- Personalised Service: I understand the unique challenges sole traders face and offer tailored solutions to meet your specific needs.
- Reliable and Efficient: I’m committed to providing accurate and timely bookkeeping services.
- Affordable Rates: I offer competitive rates that won’t break the bank.
- Clear Communication: I’ll keep you informed every step of the way, answering your questions and providing regular updates,
- We’re Local: We’re based in Maidstone and work with clients in The Medway Towns, Swale, Tonbridge and Ashford.
