Preparing for Making Tax Digital for Income Tax Self-assessment (MTD ITSA)

Published by Rowan Pullies on 10 April 2024

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Making Tax Digital for Income Tax is a new way of reporting property and sole trade income to HMRC, and you must use software to keep digital records and to send Income Tax updates.

HMRC estimates that there will be transitional costs to those affected by MTD ITSA, but those utilising digital tools already will be less affected, and will be benefitting from the digital shift on their own terms, giving clearer indications of potential tax liabilities, and making the most of the benefits of using digital software.

With sole traders and/or landlords being affected from April 2026, whose total business or rental income (including both combined) is greater than £50,000, and those with total income greater than £30,000 from 2027, here is what you can do now to prepare for MTD ITSA and why:

Online software

The requirement for MTD ITSA is less than two tax years away, so now is the perfect time to start embracing technology and digitising your records.

Utilising online software provides increased efficiency, accuracy, real time data insight, and alleviates administrative burden, human error, and manual processing. It can also help forecast future tax liabilities so that you can set savings aside.

You will need to maintain digital records using MTD-compatible software for each separate business.

As an example, utilising the right software for landlords can assist with property management, where you can easily keep track of rental receipts, store important documentation in one place and set renewal reminders for insurance or other services.

Hammock is a software that we currently recommend for UK Landlords, and it offers numerous other benefits such as helping to manage your property portfolio with rental yields, occupancy rates, and notifications of rent arrears or missing payments. You can find out more information on our dedicated Hammock page.

Xero and QuickBooks are just some examples of software that we would recommend for other business income.

Bank account

It will be beneficial to set up separate bank accounts for each business or trade. This means that the bank accounts can easily be connected to each software as required, to automatically feed the transactions through ready to analyse, which will save time and costs in the long run.

Certain banks such as Starling offer free business bank accounts, which can be integrated with your online software.

Digital Tax account

You will need to ensure that you have a personal tax account set up with HMRC to meet the requirements of signing up for MTD ITSA.

Through your digital tax account, you will be able to check any tax amounts due for payment, as well as check your state pension National Insurance contributions and pension forecast.

If you would like to find out more about Making Tax Digital or if there is anything else we can help you with, please don’t hesitate to get in touch with our team.

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