Further Changes to Making Tax Digital for Income Tax Self-Assessment Announced by HMRC

HMRC continues to work towards implementing Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) from April 2026. After consultation, some important changes were made to the regime affecting taxpayers which accountants need to be aware of.

MTD for ITSA – key dates

Currently, taxpayers with income from a small business submit a self-assessment tax return to HMRC each year by 31 January after the end of a tax year (5 April). When implemented, MTD for ITSA will require such taxpayers to report information online using HMRC compatible software at the end of each quarter.

From April 2026, small business owners such as sole traders and landlords with income of more than £50,000 must keep digital records and provide quarterly updates about their income and expenses to HMRC using MTD-compatible software. From April 2027, the reporting threshold is reduced to £30,000. These requirements have not changed since the draft regulations were published by HMRC.

Changes made as a result of the government’s consultation

The government completed further consultation and published the outcome in February 2024. As a result, some important changes were made to the draft regulations.

Requirement to submit an End of Period Statement has been removed

Under the draft regulations, HMRC proposed when correct information for all four quarters had been submitted for each income source, the taxpayer makes a fifth submission to confirm ‘everything for this business has been submitted’. Other taxable income such as bank interest, dividends, and similar items, were to be included in the EOPS. After the EOPS was submitted, a final declaration would still need to be made. However, the government decided the EOPS is unnecessary, and the submission requirement has been removed.

Joint landlords

The government accepted the draft regulations were overly complex where more than one taxpayer needs to report transactions where a property was rented out jointly. The draft regulations expected each individual taxpayer would be responsible for submitting their own share of income or expenses from a property each quarter. This ignored circumstances where joint landlords may decide only at the end of a tax year how to split expenses between them, or that circumstances may change, making quarterly reporting difficult.

Joint landlords can now keep less detailed digital records and opt out of submitting information about expenses each quarter.

Automatic exemptions

HMRC is creating automatic exemptions within MTD for certain taxpayers, including foster carers and individuals without a National Insurance Number. There is no need for such taxpayers to apply for an exemption thus reducing the administrative burden for them.

Multiple agents

The draft regulations allowed only one agent access to discuss a taxpayer’s position with HMRC operatives. The government recognises an individual may have more than one agent acting for them and is looking at ways to allow multiple agents access to discuss an individual’s tax position. Further details are awaited on how this will operate in practice.

Quarterly submissions

Probably the most important change for accountants is the submission of information each quarter online to HMRC. Under the draft legislation, quarterly submissions were designed to include information about income and expenses for each specific period. This meant information submitted at the end of the first quarter must apply to that quarter, and so on throughout the tax year.

Consultees highlighted problems where information submitted in a quarter required amendment. The information for the affected quarter would need to be resubmitted which could lead to delays in meeting deadlines for submitting information throughout the year.

The legislation has been changed to allow information to be submitted cumulatively. An error in the first quarter submission can be corrected in a subsequent quarter depending on when the error is found. This is a positive change and will make it easier for taxpayers and accountants to correct errors and ensure the cumulative position reported to HMRC is accurate.

Action accountants can take following changes announced by the government

Accountants will need to discuss the changes announced by the government with affected clients. While the changes are welcome, many accountants are concerned the threshold to follow MTD for ITSA rules (income of £30,000 from April 2027) remains low. Small businesses such as sole traders and landlords often have fluctuating income and may find themselves reporting on very low amounts in certain tax years.

Accountants who are agents will still need an Agent Services Account (ASA) to access MTD for ITSA services and make submissions on behalf of clients. Most accountants will have set this up when MTD for VAT was introduced and will have MTD compatible software to submit returns.

How Initor Global can help

At Initor Global we support accountants deliver MTD effectively by providing bookkeeping services, sole trader and small business accounts preparation, VAT return preparation and personal tax work. To discuss your outsourced accounting needs in more detail, you can contact us on hello@initor-global.co.uk or visit our website at www.initor-global.co.uk.