Tax compliance in the UK is about to witness its biggest revolution recently with the government’s Making Tax Digital (MTD) for Income Tax Self-Assessment (ITSA). The new initiative is expected to be rolled out in April 2026 for individuals having a total gross income exceeding £50,000 and later in 2027 for individuals in the income bracket of £30,000 to £50,000.
This new initiative aims to make the entire tax reporting process digital, thus increasing the accuracy and efficiency of taxpayers’ tax filing processes. With MTD for ITSA, HMRC will require taxpayers to use compatible software to track their income and expenses. This software will automatically transmit that data to HMRC, consequently eradicating the need for the yearly Self-Assessment Tax Return.
The new wave of digital tax-making presents opportunities and challenges for accountants and individuals in the UK. In this blog, we will look closer at what MTD (ITSA) means for individual taxpayers, how to choose the right software, and how accountants can guide their clients through the transition and grow while doing it. So, if you’re an accountant in the UK, here’s everything you need to know about making tax digital.
Select an element to maximize. Press ESC to cancel.Making Tax Digital – Everything Individuals Need to Know​
What is Making tax Digital for Self-Assessment and Important dates
At its very core, MTD is HRMC’s initiative to make the entire self-assessment tax preparation and filing process for individuals digital. The initiative was initially planned to be rolled out in 2018; however, due to several pushbacks, it will be rolled out in April 2026. As part of the first phase of making tax digital, only individuals with gross income exceeding £50,000 will be required to file their income tax using government-approved software. However, starting in April 2025, it will apply to everyone earning over £30,000. The MTD for general partnerships will be launched later, the details of which have yet to be announced.
As an accountant, you must ensure that your clients are aware of those important dates and prepare your accountancy firm in advance for this new wave of tax reform. This entire overhaul of the process will require much preparation from your side to make sure that the transition is seamless and smooth.
Making Tax Digital for Self-Assessments – A Quick Guide for the Accountants
As an accountant, you must know that even though MTD is a government issue, the HMRC will not register individuals who qualify automatically. Hence, you must assess and identify your clients eligible for the desired income group and register them for MTD using HMRC’s online portal. You also will have to educate your clients on the list of MTD-approved software that they can use. In case you have clients that are still using spreadsheet, you need to introduce them to bridging software that can make the transition smooth for them.
Under MTD, clients will be required to submit their tax assessments on quarterly basis as opposed to the standard annual return. The goal with quarterly returns is to have real-time visibility into different tax obligations as opposed to the year end surprises. Your clients must be aware of –
- Quarterly updates: This is applicable every three months starting April 2026
- End of Period Statement (EOPS): This will be to finalize tax position for the year.
- Final declaration: This will replace the Self-Assessment tax return.
Furthermore, not every individual needs to register for MTD for ITSA. You need to register if you –
- Are you a registered Self-Assessment user, a sole trader, a landlord, or someone who submits an annual Self-Assessment tax return to report additional income?
- Earn your income through self-employment, rental property, or both.
- Earn over £50,000 (from April 2026).
For those earning between £30,000 and £50,000, you will have to comply from April 2027.
Selecting the Right MTD Software
To make the MTD transition seamless, HMRC has prepared a list of MTD-compatible software providers.Here are some key features that can help you decide on the right software for you.
- Automated data entry for increased accuracy.
- Ability to integrate with the banking system for seamless transaction tracking.
- The easy-to-use user interface for simplifying the complex tax return preparation and filing process.
- Ability to manage multiple clients for accountancy firms.
- It must be cloud-based to get real-time access to your data from anywhere.
- Enhanced levels of data security and backup options.
Common MTD Challenges and Their Solutions
Depending on the size of the accountancy firm you manage, you or the clients you manage might have multiple challenges with MTD. However, there are some generic challenges that accountants will face. We work with accountancy firms all over the UK, and here are some of the glaring challenges that we have been able to identify during our discussions with accountants in the UK, along with their solutions.
- Reluctance to Switch to Digital: This is perhaps the most common challenge with every new technological wave. Some clients will hesitate due to their limited technical knowledge, but you can overcome this by educating them properly or giving them proper training.
- Handling Complex Financial Conditions: As an accountant, you will often encounter clients with multiple income sources (self-employment + rental properties). This can cause problems with MTD compliance. However, this issue can easily be resolved using the right customized MTD software that consolidates multiple income streams seamlessly.
- Data Migration: Transitioning from manual records to a digital platform will certainly bring data protection challenges. Hence, you must ensure that there’s a proper data audit before starting your data migration.
- Moving Away from Spreadsheets:Â for the clients that still rely on spreadsheets, you must introduce bridging software so that the transitioning away from spreadsheets is smooth.
Final Thoughts
Digitization of tax is inevitable. As an accountancy firm, your only option to survive and thrive in this new era is to embrace technological evolution, train your teams on new software platforms and tools, and partner with a reliable Accounting & Tax outsourcing partner. Doing these will not only help your firm get ready for the future but also will help you support your clients proactively. By acting on MTD today, accountancy firms in the UK can quickly turn MTD compliance into a growth solution for their firms. If you’re thinking about starting your MTD journey today but do not know where to begin, write to us at [email protected], and we will have our experts reach out to you to assess your solution and provide relevant solutions.
