Making Tax Digital for Income Tax (MTD IT): What You Need to Know 🤓

  • By Stacey Smith
  • •
  • 04 Mar, 2025
  • •


The UK government’s Making Tax Digital (MTD) initiative is transforming the tax system, making it easier for individuals and businesses to get their tax right and keep on top of their affairs. One of the significant changes coming up is MTD for Income Tax Self Assessment (ITSA) sometimes shortened to MTD IT (just to confuse everyone), and it’s ESSENTIAL for sole traders, landlords, and anyone filing self-assessment tax returns to understand these new requirements.

Let’s break down what it means and how to prepare.

📌 What is MTD ITSA?

MTD ITSA is part of the broader MTD program, aiming to digitise the tax process. Under this system, self-employed individuals and landlords with annual business or property income over £30,000 will be required to:

  1. Keep digital records of their income and expenses.
  2. Submit quarterly updates to HMRC via compatible software.
  3. Complete an End-of-Period Statement (EOPS).
  4. Submit a final declaration instead of the annual self-assessment tax return.

🗓️ Who Does it Affect and When?

From April 2026, MTD ITSA will apply to self-employed individuals and landlords earning over £50,000.

From April 2027 Those earning between £30,000 and £50,000 will also need to comply.

Partnerships and businesses below the £30,000 threshold are currently under review, so watch this space for updates.

If you are VAT registered, you will need to do this is in addition to your Quarterly VAT returns.

💻 How Will It Work?

Here’s a step-by-step overview of what the process will look like:

  1. Digital Record-Keeping: You'll need to maintain records digitally using MTD-compatible software such as Xero, QuickBooks, or DEXT.
  2. Quarterly Updates: Every three months, you'll submit summaries of your income and expenses to HMRC.
  3. End-of-Period Statement (EOPS): At the end of the tax year, confirm the information you've sent throughout the year and make any necessary adjustments.
  4. Final Declaration: This replaces your annual tax return, where you finalise your tax and submit any additional information.

🚀 How to Prepare for MTD ITSA

  1. Review Your Systems: Ensure you're using MTD-compatible software. At Celtic Bookkeeping, we use Xero and DEXT to streamline digital record-keeping and automate processes.
  2. Stay Informed: Changes and updates are still being rolled out, so keep an eye on HMRC communications.
  3. Seek Professional Support: Transitioning to MTD might seem daunting, but you don’t have to do it alone. Our team is here to help you understand the requirements and set up efficient systems.

🌟 Why is MTD a Good Thing?

While it might seem like more work initially, MTD has clear benefits:

  • More Accurate Records: Real-time updates reduce the risk of errors.
  • Better Cash Flow Management: Quarterly reporting helps you understand your tax liabilities earlier.
  • Streamlined Processes: Digital record-keeping saves time and effort compared to paper records.

🤝 Celtic Bookkeeping is Here to Help

At Celtic Bookkeeping, we’re committed to making your transition to MTD ITSA seamless. Whether you’re already using digital tools or just starting, our team can guide you every step of the way.

Want to know more? Contact us today, and let’s get you ready for MTD ITSA!

🎄Claimable Business Expenses at Christmas: A Quick Guide🎄

By Stacey Smith • December 12, 2024
Christmas is a time for giving, celebrating, and showing appreciation to your team and clients. But did you know some of these festive costs can be claimable business expenses? Here's a quick guide for both sole traders and limited companies to make the most of the festive season while staying tax-efficient.