Introduction to MTD and ITSA 2026 – Important!

With less than a year to go before MTD Making Tax Digital for Income Tax Self-Assessment goes live.

Who’s affected, and when –

Sole Traders and landlords earning over 50,000 annually.

You will need to keep digital records and use MTD compliant software and submit your quarterly summaries to HMRC for all your income and expenses.

The above is the first phase which will take effect April 2026.

The second phase will come into effect April 2027 for sole traders and landlords with qualifying income i.e. gross income from self-employment and property before any tax allowances or expenses are deducted – above £30,000. The threshold will then decrease to £20,000 from April 2028.

The concept of digital taxation is not new, but its implementation has gained significant momentum in recent years. Making Tax Digital (MTD) is a key initiative by the UK government to modernize the tax system. This document explores the evolution of MTD, its impact, and the anticipated introduction of Income Tax Self – Assessment (ITSA) in 2026.

Skymark is ready and this article is for your information only. We will reach out to you over the coming months to explain the next steps. If you do know of anyone else in your world who might benefit from this article please feel free to forward it on and share the knowledge.

Its crucial that we are compliant and ready!

Income Tax Self – Assessment (ITSA) 2026

Income Tax Self-Assessment (ITSA) is a crucial component of MTD, set to revolutionize how individuals and businesses report their income tax. The ITSA framework will see significant changes starting from 2026. This will have a massive impact on the reporting and accounting requirements for all our self employed and sole trader clients!

Key Features of ITSA 2026

The introduction of ITSA under MTD will include several pivotal changes:

• Quarterly Updates: Taxpayers will be required to submit quarterly updates of their income and expenses using compatible software.
• End-of-Period Statement (EOPS): An annual statement to finalize the tax year’s figures, ensuring accuracy and completeness.
• Digital Record-Keeping: Mandate to keep digital records of all transactions to facilitate accurate and timely submissions – the categories will mostly align with the self-assessment.
• Integration with Accounting Software: Encouraging the use of HMRC-approved software to streamline the tax filing process. At Skymark we are ready and use making tax digital compliant software.

Reporting deadlines

The standard quarterly reporting deadlines are:

• 6 April to 5 July
• 6 July to 5 October
• 6 October to 5 January
• 6 January to 5 April

Businesses can elect to report for calendar quarters:

• 1 April to 30 June
• 1 July to 30 September
• 1 October to 31 December
• 1 January to 31 March

The deadlines for quarterly updates will be 7 August, 7 November, 7 February and 7 May following the end of the relevant quarter.

Implications for our Sole Trader and Landlord Clients (Tax payers)

The shift to ITSA will bring several implications for taxpayers:

• Increased Compliance: The requirement for quarterly updates will necessitate more regular and detailed record-keeping.
• Cost of Compliance: There may be initial costs associated with new systems needed and training.
• Reduction in Errors: Automated processes will likely reduce the number of errors in tax returns.
• Real-Time Tax Information: This is a key positive for us as regular updates will provide taxpayers with a clearer picture of their tax liabilities throughout the year. You can then plan your budget with confidence and don’t have to worry about any nasty surprises.

Benefits of MTD and ITSA

The benefits of MTD and ITSA extend beyond compliance and efficiency. They promise a future where tax administration is seamless, transparent, and less burdensome.

For Taxpayers

• Ease of Use: Digital submission through compatible software simplifies the tax filing process.
• Greater Accuracy: Reduced risk of human error ensures accurate tax returns.
• Better Financial Management: Regular updates facilitate better budgeting and financial planning.

For HMRC

• Enhanced Compliance: Improved visibility into taxpayer activities helps in identifying non-compliance and fraud.
• Operational Efficiency: Automated systems reduce administrative burdens and processing times.
• Data-Driven Insights: Real-time data enables informed decision-making and policy formulation.

Penalties

Under MTD for ITSA the new points-based penalty regime introduced by HMRC applies to both a failure to submit on time, and late payment of tax.

This regime is already in force for VAT (since January 2023) and will apply to MTD for ITSA from the 2026 start date for relevant taxpayers.

• One point is incurred for each late submission.
• Once a taxpayer reaches a certain threshold, a £200 fixed penalty is issued.
• Further penalties of £200 apply for each additional late submission after the threshold is met.

Points expire:

• After 24 months if the taxpayer remains compliant.
• If the threshold is reached, a period of compliance is required to reset the points total (e.g. 12 months with no late submissions for quarterly obligations).

Conclusion

The journey towards Making Tax Digital and the implementation of ITSA 2026 marks a significant shift in the UK tax system. It promises greater efficiency, transparency, and ease of compliance for taxpayers while enabling HMRC to operate more effectively. However, the transition will require careful planning, support, and adaptation from all stakeholders involved. As the deadline approaches, it is crucial for taxpayers to stay informed and prepare for the changes ahead, embracing the future of digital taxation.

If we look after your Sole Trader and Self Employment accounts then you have half the battle won. However, we will need your support to help us get the process in place and as seamless as possible.

We will be in contact over the coming weeks to explain what needs to happen next.

If you have any questions in the meanwhile please reach out to me.

[email protected]

03333 446 829 ext.1001

 

If you know of anyone that does not have an accountant and need professional support please share our details and we will be more than happy to support.

The cost of non-compliance is much more than paying for the right advise!

 

Zirk Coetzee

12.05.2025