Designed to reduce the tax gap and simplify tax management for individuals and businesses, the Government’s Tax Administration Strategy is set to introduce Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA) by 6 April 2026.
It will require those who are self-employed, and landlords, to use the MTD software to record their earnings and calculate tax liabilities.
MTD requires taxpayers to send digital records directly to HM Revenue & Customs (HMRC).
MTD taxpayers will be required to use compatible accounting software which, the Government hopes, will encourage wider efficiency and digitisation.
However, certain elements of the proposal have met with resistance due to confusion over new requirements.
Before the scheme comes into force, the Government has made several practical tweaks to the policy.
Tax and self-employment
MTD seeks to reduce the amount of tax lost by the Government due to errors.
Starting in April 2026, self-employed individuals and landlords with income of more than £50,000 will need to maintain digital records and submit quarterly updates on their earnings and expenses to HMRC using software compatible with MTD. For those with income between £30,000 and £50,000, this requirement will come into effect from April 2027.
Under existing proposals for MTD ITSA, taxpayers are required to submit an End of Period Statement (EOPS) in two parts:
- EOPS reporting taxable profit/loss.
- A Final Declaration containing EOPS data, other income, allowances and reliefs.
However, the EOPS caused a stir among taxpayers as it would have separated the current year-end process into two steps, resulting in confusion and uncertainty for traders.
It may have also actively harmed the overall aim of the scheme by introducing a new potential source of error.
What has changed?
The Government has announced that the EOPS will no longer be required.
The change should simplify the ITSA process and reduce the possibility of mistakes and inaccurate reporting.
What will this mean for taxpayers?
Taxpayers will now face a more straightforward process for submitting year-end reports under MTD.
Taxpayers can easily access their financial reports throughout the year with quarterly updates, making end-of-year submissions easier. They will also be able to correct past errors in the next quarter, rather than resubmit in the same quarter.
Overall, these new measures will go a long way to achieving the scheme’s goal of streamlining finances for self-employed individuals and sole traders.
How can we help?
If you are self-employed or a landlord, you may benefit from professional financial advice before MTD comes into law.
Making a mistake and paying less tax than you owe could result in a large bill later, or even legal difficulties.
We can advise you on using the MTD system, integrating it with your current accounting software and complying with the accompanying regulations.
To access bespoke support, please don’t hesitate to get in touch with our team today.
