Making Tax Digital for Income Tax (MTD ITSA)

The UK tax system is undergoing its biggest change in decades.

From April 2026, millions of self-employed individuals and landlords will need to report their income digitally and quarterly—not once a year.

If you run a solo business, freelance, or earn property income, Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) will directly affect how you stay compliant.

This guide explains what MTD really means, who it applies to, what changes in practice—and how to prepare without stress.

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What Is Making Tax Digital (MTD)?

Until now, Self-Assessment followed a simple rhythm:

• One tax return
• Once a year
• Often rushed at the deadline

That model is ending.

MTD for Income Tax Self-Assessment (MTD ITSA) introduces a new system built around digital records and regular reporting.

From April 2026, MTD requires you to:

• Keep digital records of income and expenses
• Submit quarterly updates using HMRC-recognised software
• Complete a final year-end declaration instead of a traditional tax return

In short:
No paper records. No once-a-year scramble. No guesswork.

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‍Who Needs to Comply with it?

MTD for Income Tax is being rolled out in phases:

• April 2026 – Income over £50,000
• April 2027 – Income over £30,000
• April 2028 – Income over £20,000

If your income is below £20,000, you’re currently out of scope.
General partnerships are also excluded—for now.

Even if you’re not yet required, voluntary sign-up is allowed, and many businesses choose to join early for better visibility and smoother workflows.

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‍How MTD Works in Practice?

If you’re within scope, you must:

1. Maintain digital records of all income and expenses
2. Submit quarterly updates through approved software
3. File a final declaration after the tax year ends

Important to note:
HMRC does not provide free software. You’ll need to choose your own solution.

Choosing the right system—and setting it up correctly—is critical.

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Choosing MTD-Compatible Accounting Software

Your software must be:

• HMRC-recognised
• Capable of bank feeds and receipt capture
• Simple to use, scalable, and secure

Popular UK-approved options include:

• Xero
• QuickBooks
• Sage
• FreeAgent

Tip: Don’t wait until 2026. Start trialling software now to avoid last-minute pressure.

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MTD Penalties: What Happens If You Don’t Comply?

Once you’re in scope, MTD compliance is mandatory.

HMRC is introducing a points-based penalty system:

• Late submissions → penalty points (four points = fine)
• Late payments → escalating financial penalties

The only safe window?
The voluntary testing phase, where penalties don’t apply. This is your opportunity to learn the system without risk.

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Who Is Exempt from MTD?

Some taxpayers are deferred until at least 2029, including:

• Ministers of Religion
• Lloyd’s Underwriters
• Blind Persons’ Allowance recipients
• Married Couples’ Allowance recipients

Others may apply for exemption if digital adoption is genuinely impractical—but approvals are limited.

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How to Prepare for MTD—Right Now

You don’t need to wait for the deadline. In fact, you shouldn’t.

The smartest approach is to:

• Choose MTD-compatible software
• Start keeping digital records today
• Sign up voluntarily to the scheme
• Build the habit of quarterly reporting

Early adoption = less admin, fewer errors, no surprises.

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How Elixir Helps You Stay MTD-Ready

At Elixir, we don’t just make you compliant—we make MTD simple and predictable.

We work directly with leading UK software providers (Xero, QuickBooks, Sage, FreeAgent) and offer discounted and even free access for our clients.

Our MTD package starts from £20/month (around 65p a day) and includes:

• Fully HMRC-compliant accounting software
• Ongoing reminders and human support
• Quarterly submissions handled correctly
• Final year-end declaration

But compliance is only part of the picture.

With digital records, you gain:

• Real-time cash flow clarity
• Better forecasting
• Fewer tax shocks
• Confidence every quarter—not just in January

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Final Thought: MTD Is a Shift—Not a Burden

Making Tax Digital isn’t just another rule to follow.
It’s a structural shift toward clarity, accuracy, and control.

Handled well, it reduces stress and improves decision-making.
Handled late, it becomes expensive and disruptive.

The choice is yours.

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