What is MTD?

MTD is a key part of the government’s work to digitalise the tax system. It changes how some taxpayers maintain their accounting and tax records and how they transact and communicate with HMRC.

The project began with VAT. MTD VAT has applied to all VAT-registered businesses since April 2022. MTD will be phased in for ITSA from April 2026. No date has yet been set for MTD for corporation tax. 

Who is within MTD ITSA?

Initially, MTD ITSA will apply to individuals who:

• carry on a trade (commonly referred to as self-employed or sole traders); and/or 
• rent out property (landlords).

There are some exemptions, for example, individuals who are digitally excluded will not have to comply with MTD ITSA. 

The initial phase of MTD ITSA will not apply to other income taxpayers, such as partnerships and trusts and estates. They may be brought within MTD ITSA at a later date. 

When does MTD ITSA start?

The start date is determined by an individual’s total turnover/gross income. This is the combined sales and rents from all trades and property businesses they carry on.

An individual must comply with MTD ITSA:

• from 6 April 2026, where their annual turnover exceeds £50,000; and
• from 6 April 2027, where their annual turnover exceeds £30,000. 

The figures from the individual’s ITSA tax return for 2024/25 will be used to determine if they must comply with MTD ITSA from 6 April 2026. 

At Autumn Budget 2024, the government announced that MTD ITSA will be extended to individuals with an annual turnover of more than £20,000. This extension is expected to come into effect before the end of the current parliament and a specific date will be announced at a future fiscal event.

What will change?

When MTD ITSA becomes mandatory, taxpayers within scope will be required to:

• maintain digital accounting records in a software product or spreadsheet. Maintaining paper records will no longer meet the legislative requirements; and
• submit quarterly updates to HMRC and finalise their tax position after the end of the tax year. The quarterly updates will need to be submitted using a functional compatible software product that can access HMRC's application program interfaces (API) platform.

This means that they will need to acquire a suitable commercial software product or appoint an agent to submit information to HMRC on their behalf.

The quarterly updates are intended to be a simple summary of transactions. A final, year-end return is also required. Any tax and accounting adjustments that are needed can be made in the year-end return.

Separate quarterly updates will be required for each business. For example, an individual who has one self-employment and also has a UK property business will need to submit eight quarterly updates a year. 

The due dates for paying tax will not change under MTD ITSA.

When are the updates due?

The quarters and deadlines for submitting updates are as follows:

• 6 April to 5 July: 7 August
• 6 July to 5 October: 7 November
• 6 October to 5 January: 7 February
• 6 January to 5 April: 7 May

Therefore, the first quarter for an individual who is within MTD ITSA at 6 April 2026 is the quarter ended 5 July 2026. The return for that quarter must be submitted to HMRC by 7 August 2026.

The person can elect to use the calendar quarters instead (ie, 30 June, 30 September, 31 December and 31 March).

What can I do now?

It is possible to sign up to use MTD ITSA now voluntarily. This can be done by the individual or by an agent on behalf of a client. A number of eligibility conditions apply, including that the taxpayer or agent uses software that works with MTD ITSA.

MTD ITSA is expected to have a significant impact on some agents. ICAEW is publishing a series of articles which are intended to help agents to prepare their clients, and their own practices for the changes. 

Detailed guidance, updates and the articles referred to above can be found on ICAEW’s MTD hub.