How to prepare for MTD ITSA from April 2026?

dharmeshpatel001

Hi everyone,

I’ve been reading about Making Tax Digital for Income Tax (MTD ITSA) starting from April 2026, and I’m a bit confused about how to prepare for it.

Do we need to submit quarterly updates manually, or is there software that makes the process easier?

Also, what’s the best way to track income and expenses to stay compliant with HMRC rules?

Any advice would be really appreciated. Thanks!

poseidon1

The Low Incomes Tax Reform group have produced a very comprehensive guide on all aspects of the MTD regime, including providing a link to HMRC's online tool to help identify suitable third party software providers for your requirements - see below

https://www.litrg.org.uk/making-tax-digital-income-tax

DRS1

Just on the quarterly reporting question - you are not going to be able to manually input figures into HMRC. You are going to need THIRD PARTY software which is MTD compliant. They do claim some of this software is free but you can bet that won't last. So you are going to have pay for the privilege of submitting your tax returns in future - damned cheek if you ask me.

If you already have some sort of accounting software like Sage then you should look at what they are doing for MTD. Or if you have a business account with NatWest there may be a free MTD compliant thing available as part of the package.

LITRG

I see posiedon1 got in there first (thanks for the recommendation) but please do visit our MTD information hub. We have 12 guidance pages which cover the whole process. We've aimed our guidance at the unrepresented taxpayer, so it's written in plain English where possible, with worked examples to demonstrate the rules. https://www.litrg.org.uk/making-tax-digital-income-tax

In terms of preparation before signing up, taxpayers should be

• checking whether MTD will apply to them from April (based on the figures reported on their 24/25 tax return)
• applying for an exemption if applicable.
• Researching software choices - we recently published a blog about this which may help. https://www.litrg.org.uk/blog-post/making-tax-digital-getting-grips-software

Hope this is helpful!

beefturnmail

If possible, do what I'm doing - cease sole trading on 6th April and form a partnership. Then no need to worry about it

x44

Yup that's likewise and personally advising anyone who can to quit and retire.

Jeremy535897

https://forums.moneysavingexpert.com/discussion/comment/81930034#Comment_81930034

You should cease on the 5th. Then you must notify HMRC of the cessation as soon as possible so that you are not within MTD for 2026/27.

beefturnmail

https://forums.moneysavingexpert.com/discussion/comment/81933440#Comment_81933440

Thanks, I use cash-based accounting - what happens to income received after the sole-trading ceases, relating to work carried out when I am still a sole trader.

AI gives a contradictory answer to this - initially it says all such income must be included in the final year of accounts for the sole trader, which would have the effect of pushing more income to the 2025-26 tax year (If I cease on the 5th), which is not desirable as it'd push me over the 40% tax threshold.

When I push back on the AI response, it says it was wrong and actually such income should be included as a post-cessation receipts and taxed in 2026-27 tax year, even though the sole trader wasn't operating then.

The latter response seems to make more sense and be more in the spirit of cash based accounting, and would be better for tax purposes - but is it the correct one?

If the first response is correct, it'd be better to cease on the 6th, to force the final year of sole trading to be 2026-27

Jeremy535897

I think the second is correct.

https://www.litrg.org.uk/working/self-employment/calculating-self-employed-profits/self-employment-stopping-your-business

If you cease on the 6th, you will be in MTD for 2026/27.

Jeremy535897

HMRC has clarified the steps that taxpayers and agents should take where: 

• the taxpayer is within MTD income tax for 2026/27 (based on their 2024/25 self assessment return); and
• all of the taxpayer’s MTD sources ceased before 2026/27.  

Where this is the case, the taxpayer or their agent should call or use webchat to inform HMRC of the cessation, making it clear that there is a cessation of all MTD sources.  

HMRC will then confirm that the taxpayer is not required to use MTD income tax for 2026/27 onwards and will update the taxpayer’s record to reflect this. Written confirmation will also be sent to the person – taxpayer or agent – who contacted HMRC, although there may be a delay in receiving this.  

It is also possible to notify HMRC of the cessation by letter, but HMRC advises that telephone or webchat contact is preferred.  

The cessation must still be recorded on the 2025/26 self assessment return. 

beefturnmail

https://forums.moneysavingexpert.com/discussion/comment/81947905#Comment_81947905

Where have they clarified this please?