Thanks to upcoming changes to Making Tax Digital for income tax self-assessment (MTD for ITSA), the traditional way of submitting tax returns will soon become a thing of the past for sole traders and landlords.

Although the treasury recently announced that MTD for ITSA is delayed for a further two years, now is still the best time to move your business records onto digital systems and start using MTD-compliant software.

The earlier you familiarise yourself with the new rules, the better prepared you will be for MTD for ITSA when it comes into effect in 2026. Here’s what to expect from the scheme, and why you should get a head start now.

Upcoming changes to MTD for ITSA

MTD for ITSA was supposed to come into effect for sole traders and landlords in April 2024. However, due to soaring inflation pushing business costs up and a recession set to continue until early 2024, the Government has pushed this date back to April 2026.

At first, the scheme will only be mandatory for taxpayers making over £50,000 a year, with those earning between £30,000 and £50,000 not needing to comply with MTD rules until 2027.

This will give all businesses more time to familiarise themselves with the new rules and MTD-compatible software, especially those hit hardest by the Covid-19 pandemic and the cost of living crisis.

But although the date has been pushed back, there’s no reason to delay getting MTD-ready. There are a lot of ways for you to get ahead of the curve and test out the scheme before the rules come into place.

Pilot scheme for MTD for ITSA

If you want to get a head start, you may be able to sign up for the MTD for ITSA pilot through your software provider today. You’ll be able to sign up if:

  • you are registered for income tax self-assessment
  • you have submitted at least one self-assessment tax return
  • your accounting period aligns with the tax year
  • you already keep digital records
  • you get income from self-employment, property or both.

It’s still in the testing stages, so not everyone will be eligible for the pilot yet – including partnerships – so it’s worth talking to your accountant or looking at the HMRC website to see if you’ll be able to sign up.

If you are eligible for the pilot, there are benefits to getting started now.

Spend less time on your returns

MTD for ITSA has the potential to completely transform the way you do your taxes, making the process much quicker and more straightforward.

Instead of you needing to gather all the necessary documents and input information to submit your tax return, your MTD-compatible software provider will be able to send all the data needed to calculate your tax liabilities directly to HMRC.

Furthermore, many packages allow multiple users for each account, so your accountant will be able to access all the information with ease, reducing the amount of time you have to spend sending them the documents they need.

Understand your finances

MTD-compliant software won’t just make it easier for you to calculate your taxes – it may also help increase your understanding of your business’s financial performance.

Adopting the new process early will enable you to see how your business is progressing in real time, so you can identify problems and new opportunities more quickly and start budgeting accordingly.

Reduce errors

With HMRC pulling data directly from your accounts, the risk of human error reduces dramatically.

If you often find it difficult to make calculations correctly, this new digital way of doing your taxes will make it much easier to comply with your tax obligations.

Gain peace of mind

Signing up for the pilot now will give you a bit more breathing room before MTD for ITSA becomes law.

Allowing yourself extra time to familiarise yourself with the process will help you avoid any penalties for non-compliance, as well as give you some much-needed peace of mind.

Contact us today to find out how we can help you get ready for MTD for ITSA.

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