There is less than 1 year left until the entry into force of the new MTD system for income tax for self-assessment (and self employed).
Since 1997, when the self-billing system was introduced, this is the most significant change to date.
The Income Tax MTD will introduce fundamental changes in the way taxpayers and tax agents interact with HM Revenue & Customs.
The aim of the new system is to promote better and timely record-keeping, which will lead to a reduction in errors as part of the government's efforts to reduce the tax gap.
The change covers sole proprietorships and property owners earning more than £50,000 a year and applies from 6 April 2026.
The change consists in the mandatory keeping of digital records, the use of software compatible with the MTD standard and the submission to HM Revenue & Customs of a quarterly statement of the revenues obtained and the costs incurred.
This threshold will be lowered to £30,000 from 6 April 2027, and will then be lowered again to £20,000 from 6 April 2028.
For the calculation of income eligible for change, we include income from self-employment or rental of real estate.
This is gross income before deducting tax credits and expenses.
The new MTD system for ITSA will completely change the mode of tax reporting. Tax accounting firms handling client cases will be required to report quarterly in their operating cycle, set reminders, checklists and review procedures for each filing period.
The deadlines for submitting quarterly statements are:
period from 6 April to 5 July — the deadline is 7 August
from July 6 to October 5 - November 7
from 6 October to 5 January - 7 February
from 6 January to 5 April - 7 May
Business people in the UK and property owners in the UK will have to keep digital records of income and expenditure.
The registers kept will have to take into account the following details:
Transaction amounts and dates
Category of expenses (coinciding with the content of the tax return Self Assessment Tax Return).
Taxpayers with turnover from sole proprietorship or rental business whose income does not exceed the threshold for mandatory VAT registration (£90,000) can opt for a simplified three-line ledger system and categorise each item as income, expense, net profit.
Property owners - landlords - will be entitled to maintain a simplified register of common real estate. In addition, they will not have to file quarterly updates on these properties. Instead, they will be able to include them in their annual billing.
However, for each business activity in which the taxpayer is engaged, separate quarterly updates will be required. For example, a person who conducts business and rents real estate will be required to submit 8 updates per year.
In addition, taxpayers will have to complete and file final annual returns through software compatible with the new MTD system.
The annual tax return will need to include:
All other sources of income that have not yet been reported (e.g. income from employment, dividends, bank interest, etc.)
Apply on the declaration for discounts and tax deductions related to his case.
Digital records can no longer be stored in spreadsheets. An exception to this rule is when the sheets support the API or are used in conjunction with the required software that allows two-way communication with HM Revenue & Customs systems.
HM Revenue & Customs will apply a new point penalty system, applicable from 6 April 2026, both for failure to file a declaration on time and for late payment of tax. The same system already applies to VAT.
The system of penalties in the ITSA income tax in the MTD system includes the following scheme of penalties:
1 point will be charged for each late submission of the application
upon reaching a certain threshold, a fixed penalty of £200 will be charged
then further penalties will apply for each late submission after the threshold is exceeded and will amount to £200.
Thresholds will be based on folding frequency and include:
Annual (Final tax return) - penalty threshold 2 points
Quarterly (MTD for ITSA) - prog klary 4 points
Monthly - 5 points
Points expire after 24 months, as long as the taxpayer complies with the regulations during this period. If the taxpayer reaches the threshold, a compliance period will be required to reset the total points. For example, 12 months without delay in submitting applications).
As of April 16, a pilot program for agents and eligible customers is in effect.
Participation in the program allows practitioners to test systems in a real-world environment and provides valuable experience prior to mandatory commissioning.
Practitioners and clients must use commercial software that runs on the MTD system for ITSA.
Self-employed companies with simple incomes can take advantage of free or inexpensive options, while property owners and companies with a complex business structure will need more advanced tools.
Pay attention when choosing software, and some software may submit both quarterly updates and final, annual returns. Some products will only perform one of these actions. Therefore, first check the software before making a choice.
Some will create and send quarterly statements on their own and will only use the help of an agent to file an annual return. In this case, it is enough software that will transmit quarterly statements.
There are programs that report all sources of income from the activity. Alternatively, there are also those that focus on a selected source, e.g. programs typically designed for property owners.
Magda Mikulska
Wisetax grunnlegger
