Get Ready for MTD for Income Tax!

Get Ready for MTD for Income Tax! Why 2025/26 is Your Crucial Prep Year

Date: April 22, 2025

The way self-employed individuals and landlords manage and report their taxes is undergoing a significant transformation. Making Tax Digital (MTD) for Income Tax Self Assessment (ITSA) is on the horizon, marking a major shift towards a fully digital tax system in the UK.

While the first mandatory deadline might seem a little way off – April 6th, 2026, for those with relevant income over £50,000 – the time to prepare is now. The current 2025/26 tax year (running from 6th April 2025 to 5th April 2026) is the critical window for getting your systems, software, and understanding in place. Waiting until the last minute could lead to unnecessary stress, potential errors, and even penalties.

If you’re a sole trader or receive income from property, this guide explains what MTD ITSA involves and why starting your preparation today is essential.

What Exactly is MTD for Income Tax?

In simple terms, MTD ITSA changes how you record and report your income and expenses to HMRC. Instead of summarising everything once a year on a traditional Self Assessment tax return, MTD requires:

1. Digital Record Keeping: Maintaining records of your income and expenses using MTD-compatible software.
2. Quarterly Updates: Sending summary updates of your income and expenses to HMRC every three months through your software.
3. End of Period Statement (EOPS): Finalising your business income after the year-end.
4. Final Declaration: Submitting a final declaration confirming all taxable income (including non-business income) and claiming reliefs by 31st January after the tax year ends.

The aim is to modernise the tax system, make it more effective, efficient, and easier for taxpayers to get their tax right, with a more real-time view of their developing tax liability.

Who Needs to Prepare Now? The £50,000 Threshold

MTD ITSA is being rolled out in phases based on annual gross income from self-employment and property rental combined.

• Phase 1 (Mandatory from April 6th, 2026): Applies to sole traders and landlords with a total qualifying gross income exceeding £50,000 per year.
• Phase 2 (Mandatory from April 6th, 2027): Applies to those with qualifying income over £30,000.
• Phase 3 (Mandatory from April 6th, 2028): Applies to those with qualifying income over £20,000. (Note: These dates are based on current HMRC guidance as of April 2025).

Crucially, whether you fall into the first phase (£50k threshold) is determined by your qualifying income in the previous tax year. This means your income for the 2024/25 tax year (which ended on 5th April 2025) will dictate if you must comply from April 2026. If your figures for 24/25 are hovering around or above £50,000, consider yourself in the preparation zone now.

Why is the 2025/26 Tax Year So Important for Prep?

Treating the 2025/26 tax year as your preparation runway offers significant advantages:

• Avoid Last-Minute Panic: Implementing new software and processes takes time. Starting now prevents a frantic rush as the 2026 deadline approaches.
• Smooth Implementation: You have time to research software options thoroughly, set up your digital records correctly, and integrate the new system into your workflow without disrupting your business.
• Get Comfortable: Use this year to familiarise yourself with digital record-keeping and the process of submitting quarterly updates (even if just practising or using voluntary sign-up).
• Identify and Resolve Issues: Early adoption allows you to troubleshoot any problems with software or processes well before they become critical.
• Seek Proper Advice: Gives you ample time to consult with accountants or tax advisors to ensure you choose the right software and understand your obligations fully.
• Voluntary Adoption: You can choose to sign up for MTD ITSA voluntarily during 2025/26, even if you’re below the threshold or before it becomes mandatory. This can be a great way to adapt early.

Your MTD ITSA Preparation Checklist for 2025/26

Don’t know where to start? Here are the key steps to focus on during this tax year:

✅ 1. Check Your Income Threshold: Review your total gross income from self-employment (turnover before expenses) and property rental for the 2024/25 tax year. If it exceeds £50,000, you are highly likely to fall into the first mandatory group for April 2026. If it’s close, preparing now is still wise.

✅ 2. Understand Digital Record-Keeping: Familiarise yourself with what HMRC requires. It’s not just about storing receipts digitally; it means recording transactions in functional compatible software that can communicate directly with HMRC. Standard spreadsheets generally won’t suffice on their own without bridging software.

✅ 3. Choose MTD-Compatible Software: This is perhaps the most crucial step. Research software recognised by HMRC (they provide a list on GOV.UK). Consider: * Functionality: Does it meet your business needs (invoicing, expenses, bank feeds)? * Ease of Use: Is it intuitive for you? * Cost: Subscription fees vary. * Compatibility: Does it work well with your accountant’s systems, if you use one? * Support: What help is available if you get stuck?

✅ 4. Understand Quarterly Updates: Get clear on what these involve. They are summary figures of income and expenses for each three-month period, submitted via your software. They do not mean you have to calculate and pay your tax quarterly. The deadlines are generally one month after the end of each quarter (e.g., for the quarter ending 5th July, the update is due by 7th August).

✅ 5. Consider Professional Advice: If you’re unsure about any aspect of MTD ITSA – whether you meet the threshold, which software to choose, or how the process works – now is the time to talk to an accountant or tax advisor. They can provide tailored guidance for your specific situation.

Beyond Compliance: The Benefits of Getting Ready Early

Preparing for MTD ITSA isn’t just about ticking an HMRC box. Embracing digital record-keeping early can bring real benefits to your business:

• Better Financial Visibility: Real-time data gives you a clearer picture of your business performance and estimated tax liability throughout the year.
• Improved Efficiency: Streamlined digital processes can save time compared to manual bookkeeping.
• Reduced Errors: Software can minimise calculation errors common with manual methods.
• Informed Decisions: Accurate, up-to-date financial information supports better business planning.

Don’t Delay – Start Your MTD Journey Today!

Making Tax Digital for Income Tax represents a fundamental change, but it doesn’t need to be daunting. By using the 2025/26 tax year wisely for preparation, you can ensure a smooth transition. Assess your situation, explore software options, understand the new requirements, and seek help if needed.

Feeling overwhelmed by MTD ITSA? We can help you navigate the changes, choose the right software, and ensure you’re fully prepared and compliant. Get in touch today for expert advice and support.