Outsourcing MTD for Income Tax: A Practical Guide for Accountants

What Is Making Tax Digital for Income Tax?

Making Tax Digital for Income Tax (‘MTD IT’) will be implemented in April 2026. Throughout 2025, HMRC is contacting agents and affected businesses to let them know how to prepare for their new responsibilities to maintain digital records and submit information online each quarter. While most accountants understand HMRC’s requirements and are taking steps to get their Practice and clients ready, many accountants are considering how outsourcing can help deliver the services businesses need to meet their new MTD responsibilities.

We’ve prepared this practical guide to help accountants navigate the new MTD IT landscape and use outsourcing to build an effective service proposition.

Who Is Affected by MTD IT from April 2026?

From April 2026, any individual who is a UK taxpayer with total income from self-employment or property (including foreign property) which is more than £50,000 is affected. Both sources of income contribute to the total amount HMRC will use to assess eligibility. The threshold reduces to £30,000 from April 2027 and from April 2028 it reduces to £20,000. Income from employment or from a limited company is not part of the MTD IT regime and isn’t part of the assessed total income.

HMRC will use information submitted by individuals in their 2024/25 self-assessment tax return to determine whether they should enter the MTD IT regime. If total income exceeds £50,000 then the individual must comply with the new requirements from April 2026 and remain part of the regime for the next three years.

The Key Compliance Requirements

For each qualifying business or income source, individuals will need to maintain complete, digital records of income and expenses and submit a summary online each quarter to HMRC.

MTD IT will require HMRC compatible software and additional bookkeeping and accounting resources to deliver. There will be regular touch points with clients, recurring bookkeeping work, review of income and expenses and submission of data to HMRC each quarter. A final submission containing MTD IT qualifying and other income sources is needed by 31 January after the end of the tax year.

Why Accountants Should Consider Outsourcing MTD IT Work

Accountants have been outsourcing work to offshore suppliers for many years. Typically, accountants will start outsourcing small amounts of recurring work such as monthly bookkeeping or year-end accounts work to help integrate the offshore team into the firms operations. As systems and processes are embedded, the onshore accountant will steadily increase the volume of work outsourced.

Step-by-Step: How to Implement an Outsourced MTD IT Solution

Before entering into any outsourcing agreement, accountants must complete extensive research on potential partners, evaluate their industry reputation, track record, client testimonials, and the scope of services they offer. Check if they have experience working with firms similar to yours and understand your specific needs. For MTD IT, check how the offshore supplier is engaging accountants with their thought leadership and development of new services. Assess whether MTD services meet your needs or whether a more tailored approach is needed.

Set clear, measurable goals for your outsourcing initiative. Define what you aim to achieve, whether it’s compliance, cost reduction, accessing experts, or improving service delivery. Clear objectives will help guide your strategy and provide a benchmark to measure success.

Prepare your firm for outsourcing

Undertaking a critical review of internal resources and comparing to the capacity needed to deliver MTD IT work for affected clients and plans to grow this area of the firm will dentify shortfalls which need to be managed. Throughout 2025, accountants can test the outsourcing process with a small amount of work for sole traders and landlords such as offshore bookkeeping, annual accounts preparation or self-assessment tax return work. Outcomes can be evaluated for quality, technical accuracy and turnaround against key performance indicators consistent with in- house targets.

Undertaking a review of internal systems and processes can help integrate an outsource supplier to an accountant’s operations. Client data will need to be accessed using remote login arrangements or shared through secure portals.
Workflows will need to be updated to track the progress of work outsourced and delivery in accordance with the terms agreed. Communications with clients can be automated to let them know when work is completed, or when additional information or authorisation is needed.

Most outsource suppliers will prepare working papers in a format agreed by the onshore accountant. Asking the offshore supplier to provide any advice or suggestions for improvement in working papers, or if they have a better format, is a good way to build relationships between the onshore and offshore teams.

Managing Your Team and Internal Processes

A common misconception among accountants considering outsourcing is their people will feel their jobs or careers are threatened. However, in most cases, outsourcing allows accountants to look carefully at the career paths of individuals,
ensuring they shift focus away from recurring tasks needed by the MTD IT regime and develop the wider skills needed to meet the needs of clients and the business. MTD IT offers many opportunities for accountants to understand their clients and offer more timely tax and business advice. Individuals may require training in their new roles to understand any new processes and procedures when introducing an outsourced supplier.

MTD IT will require more regular contact with clients, particularly as quarterly deadlines for submitting data to HMRC approach. The outsourced accountant can help manage the flow of communication with a client for the work they are responsible for, enabling the onshore accountant to focus on adding value to the
client relationship.

Data Security and Compliance Considerations

When engaging an outsource supplier to process client data, the onshore accountant should review internal systems and processes to ensure data can be transmitted and received securely. This usually involves the outsource supplier accessing client servers using secure login arrangements. If this isn’t possible, most outsource suppliers use secure software file hosting services or password protected documents, though these may not be sustainable where high volumes of client data are exchanged.

When outsourcing work, the UK accountant should always seek confirmation about any GDPR, or data security credentials stated by an offshore accountant. They will also need to understand the operational procedures established by the offshore accountant to ensure data security and complete a risk assessment accordingly.

Internal policies and procedures will need to be updated to cover the tasks undertaken by the offshore accountant and the nature of data processed. Some UK accountants decide the offshore accountant should see only limited amounts or anonymised client data; others decide the offshore accountant needs full access to client information to work effectively. Including the offshore accountant in any training or staff can helps ensure awareness of the continuing importance of data security and the action required in the event a data breach occurs, including who to report the incident to.

Key Benefits of Outsourcing MTD IT Tasks

Outsourcing MTD IT work to an offshore supplier offers many benefits to UK accountants through:

• helping clients comply with HMRC requirements.
• reduced risk of penalties for late/missing submissions
• reduced costs and overheads
• access to talent and resources
• increased quality and consistency of work
• better turnaround times
• improved client experience.