As you may already be aware, HMRC will shortly be changing the way some individuals need to report their income and expenses.

Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) is part of a plan to make taxes easier and more accurate by switching to computers rather than paper records and may apply to you if you’re self-employed (like a freelancer or small business owner) or a landlord (renting out property).

What does this mean?

MTD ITSA changes how you tell HMRC about your money. Instead of filling out one tax return once a year, you’ll:

Keep Digital Records: Track all your income (money you earn) and expenses (money you spend on your business, like supplies or rent) using software such as FreeAgent. No more paper receipts in a shoebox!

Send Quarterly Updates: Every three months, HMRC will require a summary of your income and expenses through software, such as FreeAgent. Deadlines are usually the 7th of the month after the quarter ends (e.g., 7th August 2025 for 6th April 2025 to 5th June 2025).

Submit a Final Declaration: After the tax year ends (5th April 2026), we will need to send a final report by 31st January 2027 to confirm everything and include other income (if any) or claim tax reliefs. This replaces the old Self-Assessment Tax Return.

Who Needs to Do It?

You will need to follow MTD ITSA if:

• You make money from being self-employed or renting out property.
• Your total income from these is over £50,000 a year (starting April 2026) or over £30,000 a year (starting April 2027). This is your gross income (money before expenses, not your profit).‍
  
  • Example: If you run a small shop making £40,000 and rent out a flat for £15,000, that’s £55,000 total, so you’re included from April 2026.‍
  • Example: If you run an online shop making £22,000, you’re not included until at least April 2028, though you should be ready for when it is announced or expected income passes the threshold.

If your income is lower, you can still join voluntarily, but you don’t have to. This doesn’t apply if you’re only employed (on PAYE) or get income from certain sources like investments.

When Does It Start?

• ‍April 2026: For people earning over £50,000 a year.‍
• April 2027: For people earning over £30,000 a year.‍
• April 2028: For people earning over £20,000 a year. HMRC might include even smaller earners later, but that’s not decided yet.

What do you need to do?

1. ‍Get Software: You will need HMRC-approved software (like FreeAgent) to record your money and send updates. At Clever Accounts we provide FreeAgent as part of our monthly service, or if you would prefer you can pay for an alternative software. However, you will need to check with the software provider to ensure it works for MTD ITSA,
2. Track Money: Enter all your income and expenses in the software. Some apps can connect to your bank to make this easier.
3. Send Updates: We will contact you quarterly to ensure your software has been updated and send your quarterly summaries to HMRC.

Exemptions (Who Doesn’t Have to Do It)?

You might not have to do MTD ITSA if:

• You can’t use computers because of age, disability, or living somewhere with bad internet (called “digital exclusion”).
• Your beliefs (like certain religious groups) don’t allow electronic records.
• You’re going through bankruptcy or similar financial trouble. You need to apply for these exemptions with HMRC.

What If You Don’t Do It?

If you’re supposed to register for MTD ITSA and don’t, you may get penalties (fines) from HMRC. You could consider using a Limited Company to operate your business through, and there may be additional benefits in using a Limited Company. Currently, except for MTD for VAT, there are no timelines for MTD for Corporation Tax, though it is expected to be coming.

What happens now?

• ‍Stay updated: If you are a Clever Accounts client, we will contact you with further updates regarding MTD ITSA closer to the time if we believe it will apply to you. If you’re not sure if MTD ITSA applies to you or if you wish to opt in to further communication about this anyway then please contact your dedicated accountant.
• Start Early: Don’t wait until 2026. Start using FreeAgent regularly now to get used to it, either on a monthly or quarterly basis, at a minimum.
• Connect your bank: If you haven’t already, connecting your bank account to FreeAgent means all transactions are automatically presented in the software.
• Get a business bank account: If you are not using a separate business account for the business, let us know and we can set you up with a Tide account for a £75 referral, or a Mettle account for no standard fees. Why not use both!
• Save Receipts Digitally: Take photos of receipts with your phone and upload them to your software when you incur them.
• Ask for Help: Talk to us if you’re unsure of what you need to do.
• Check Your Income: Look at your 2024/25 tax return (due January 2026) to see if you’re over the £50,000 limit or let us know if you expect to exceed £50,000.

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