Making Tax Digital for Income Tax Explained

making tax digital for income tax

Are you ready to make income tax digital?

Making Tax Digital (MTD) for Income Tax is a new digital way of sending your tax information directly to HMRC instead of submitting just one Self-Assessment a year. It’s a part of a big project called Making Tax Digital to transform the whole tax system in the UK and make it digital.

We get it, business owners have a lot on their plate. Tax responsibilities and bookkeeping may be the last thing on your mind, but the reality is that it’s an integral part of the success of your business.

That’s where we come in…

Joanna Bookkeeping is a team of professional Oxford-based accountants, and we’re here to help your business comply with all of its tax-related obligations such as Making Tax Digital for Income Tax, and so much more.

And if you’re not based in the Oxford area, no problem! We’re fully digital, and offer services to businesses all over the UK!

What is Making Tax Digital for Income Tax Self-Assessment (ITSA)?

Making Tax Digital for Income Tax  (also called Making Tax Digital for ITSA) is the new way to complete your income tax return. It’s the same tax calculation as the manual-based system, but you’ll need to make sure you have an online account with HMRC and use a digital tax return service provider. You won’t be able to submit your returns manually anymore. They will have to be sent electronically.

Who Must Sign Up to Make Tax Digital for Income Tax?

The MTD system for Income Tax and Self Assessment (ITSA) will be implemented in April 2026. Making Tax Digital for ITSA is for taxpayers with business and/or property income over £50,000 per year. This applies to the total income, so if you have more than one trade, you’ll need to add them all up to see if you are above the threshold.  The taxpayers that have to comply include

MTD compatible accounting software

Want to prepare for MTD for Income Tax without stressing and panicking?

Get in touch with our Xero accountants from Oxford to discuss your accounting software options.

Who is Exempt from Making Tax Digital for Income Tax?

It may not be practical for you to use software to keep digital records or submit them. If you are digitally excluded, you will be able to apply for an exemption from using Making Tax Digital for ITSA. Reasons that may qualify you from being exempt are:

  • Your age
  • A disability
  • Your location
  • You’re a practicing member of a religious society (or order) whose beliefs are incompatible with using electronic communications or keeping electronic records

*It’s important to note that you’ll need to explain how these reasons apply to your own circumstances.

What are Your Requirements for Making Tax Digital for Income Tax?

As mentioned above, when it comes to Making Tax Digital for Income Tax, it’s no longer possible to use HMRC’s online platform to submit your tax returns. Alternatively, you’ll use software to meet your compliance obligations and make sure all dates and tax returns are being recorded under the new system. Here is a list of requirements you must follow for Making Tax Digital for ITSA:

➡️Keep digital records – This means using an approved accounting system, for example, Xero, and digital software to record your business transactions

➡️Submit returns digitally to HMRC – You can do this by using compatible accounting software or a bridging software that can send your data automatically to HMRC from a spreadsheet.

➡️Give quarterly updates – You’ll need to submit updates to HMRC at least four times a year (quarterly). Each trade or property business will mean separate quarterly updates.

➡️Submit an end-of-period statement for each trade or property business – This will include any year-end adjustments that your accountant will be able to help you with. The deadline for the EOPS will be the same as the current Self-Assessment deadline.

➡️ Submit a final declaration – You’ll report other sources of income here and any relevant personal information to come up with your final tax liability. You’ll need to submit only one final declaration and the deadlines will follow the same Self-Assessment deadlines as currently.

Making Tax Digital for Income Tax is a big change to the way we do business with HMRC. As you can see, it’s not just about switching from paper to an online system, there are a lot of legal requirements you need to consider when it comes to Making Tax Digital for ITSA.

The accounting team at Joanna Bookkeeping is always here to help! Book a FREE call and have a chat with our professional Oxford-based accountants to learn more about how we can help your business with its tax obligations.

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