Date posted: 2025-07-17

Making Tax Digital for Income Tax (MTD for ITSA): What Small Business Owners Need to Know

If you’re a sole trader or landlord in the UK, big changes are coming to the way you report your income tax. Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) is part of HMRC’s plan to modernise the tax system—and it’s set to affect thousands of small business owners over the next few years.

What Is MTD for ITSA?

MTD for ITSA is a government initiative that requires certain individuals to keep digital records and submit tax information to HMRC using approved software. The goal is to reduce errors and make tax reporting more efficient.

This is part of the broader Making Tax Digital programme, which already applies to VAT-registered businesses.

Who Will Be Affected?

MTD for ITSA will be introduced in two phases:

• From April 2026: Self-employed individuals and landlords with annual income over £50,000 will need to comply.
• From April 2027: The threshold lowers to £30,000.

If your total income from self-employment and/or property is below £30,000, you won’t be required to join MTD for ITSA just yet—but HMRC may expand the scope in the future.

Does Employment Income Count Towards MTD for ITSA?

A common question we hear is “If I have a salary from employment, does that count towards the MTD for ITSA threshold?”

The short answer is: No.

What Does Count:

Only income from the following sources is considered when determining if you need to comply with Making Tax Digital for Income Tax Self Assessment (MTD for ITSA):

• Self-employment (e.g. sole traders, freelancers)
• UK property income (e.g. rental properties)
• Foreign property or self-employment income

What Doesn’t Count:

The following types of income are excluded from the MTD for ITSA threshold:

• Employment income (PAYE)
• Dividends
• Savings interest
• Pension income
• Capital gains
• Partnership income

Example:

If you earn £40,000 from employment and £20,000 from self-employment, you’re not required to join MTD for ITSA—because only the £20,000 counts toward the threshold.

What Will You Need to Do?

If you fall within the income thresholds, here’s what MTD for ITSA means for you:

• Keep Digital Records: Maintain digital records of your income and expenses using MTD-compatible software.
• Submit Quarterly Updates: Send a summary of your business income and expenses to HMRC every three months.
• End of Period Statement (EOPS): Confirm your final figures and make any necessary adjustments at year-end.
• Final Declaration: Replace your traditional Self Assessment return with a final declaration of your total income and tax due.

Final Thoughts

If your income puts you in scope for MTD for ITSA, now is the time to start preparing. Choosing the right software and getting used to digital record-keeping early can make the transition much smoother.

Want to chat about how this applies to your business? We’re here to help you understand what’s changing and how to stay ahead, so contact us on 01484 600514 or by sending us a message here.