Making Tax Digital for Businesses

Landlords and those who are self-employed including SMEs, who have income or turnover over £50,000, will have new obligations with their records and tax returns from April 2026. This means that landlords and SMEs will need to use Making Tax Digital (MTD)-compatible software to keep digital records of their income and provide quarterly updates to HMRC.

On 19 December 2022, the original date of April 2024 was pushed back to April 2026 to accommodate for the challenging current economic environment. Landlords and SMEs with an income of between £50,000 and £30,000 who self-assess income tax will need to start using MTD-compatible software by April 2027, but most will be able to join before this date.

What is MTD (Making Tax Digital)?

MTD is a government initiative to get small businesses and the self-employed, including landlords, to complete their tax records and returns digitally. The first phase of MTD was in 2019 for VAT-registered businesses who had a turnover above £85,000. This made it compulsory for these businesses to complete VAT tax returns by using accounting software and storing digital records.

This was then extended in November 2022 to all VAT-registered businesses. These businesses are now required to use MTD compatible software and keep records with a MTD account. This means that landlords and small businesses can no longer use paper records to file their returns as they no longer meet the tax legislation requirements.

 

What is MTD for ITSA?

MTD for ITSA stands for Making Tax Digital for Income Tax Self-Assessment. This is the next phase of MTD for those that use self-assessment to file and submit tax returns. It applies to SMEs who are unincorporated businesses and landlords with a total business or property income above £50,000 per year. All accounting records relating to income tax must be held digitally within MTD compatible software.

When MTD for ITSA goes live, landlords and small businesses will no longer be required to submit a self-assessment tax return each year. Instead, they will need to maintain digital records of their taxable income, update them regularly and send them every quarter to HMRC, using third-party MTD for ITSA-compliant software or 'bridging software'. This software works with non-MTD-compatible software, so that you can digitally send the information to HMRC.

It must be authorised via your Government Gateway user ID and password. At the end of the tax year you must also submit a final annual declaration, or end of period statement (EOPS), which will confirm to HMRC that your submitted figures are accurate.

Current Self Assessment v future MTD for ITSA

 

Self Assessment	MTD for Income Tax
Ability to store digital or paper records	Necessary to maintain digital records and use MTD-compatible software - accounting software or spreadsheets with bridging software
Annual submission of all records to HMRC with tax return	Submit quarterly returns detailing transactions for that period
Complete and file one Self Assessment tax return, either online or on paper	Confirm EOPS to finalise your business income using MTD-compatible software
	Submit a Final Declaration finalising your Income Tax position for the year

Should landlords and small businesses prepare for MTD now?

If you are a landlord or small business owner with an annual income of over £50,000, MTD does not become mandatory until April 2026. However, there are several reasons why you may want to consider preparing for it now.

Some of the benefits of signing up for MTD before April 2026:

• Reduces time spent on tax admin
• Reduces likelihood of errors when calculating tax
• Allows access to real-time financial information
• Address any teething problems

To sign up now for MTD, you must be a UK resident who is registered for Self-Assessment and your tax returns and income tax payments must be up to date.

How can landlords and small businesses prepare for MTD?

Landlords and small businesses will need to use digital software that is recognised by HMRC to file records and submit information to HMRC, so it is important to have a look around for suitable software.

If you’re already using software to keep records, ask your provider if they plan on making the software compatible with Making Tax Digital for Income Tax. See details of software that is currently compatible. There are a number of software developers who are currently in the process of gaining full HMRC recognition for their software so It is likely that more providers will be added prior to go live date.

Some MTD-compatible software offer free trials or demo versions that mean you can try them out without spending any money until you settle on a software that is right for you. Take time to familiarise yourself with its functions and features so you understand how to digitise your records and submit information when the time comes.

As you will need to submit information to HMRC quarterly, it is a good idea to set aside regular times in your calendar to pull the figures together so you avoid rushing at the end of each quarter. This means you will always be on top of your finances and avoid any unnecessary stress. You should also get into the habit of digitising your documents as paper records will no longer be accepted, so you will be able to upload copies of your receipts and invoices to HMRC without a problem.

Summary of main changes under MTD ITSA:

• Digital record keeping
• Quarterly updates
• End of Period Statement (EOPS)
• Final Declaration

Business insurance from Towergate

Whether you’re a large business, SME or sole trader, work from home or have a property empire - Towergate have got an insurance policy for you. For more information, visit our dedicated business insurance page.

Landlord insurance from Towergate

Having the correct insurance in place as a landlord is crucial due to the specific risks of renting out a property. For more information visit our dedicated landlord insurance page or call us on 0330 828 0108.

About the author

Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has over 20 years' experience as a residential landlord.