MTD ITSA: What did we learn from the first deadline?

The first Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) quarterly update deadline has now passed, marking a significant change for sole traders and landlords brought into the new digital reporting regime.

For many, the first submission was as much about testing new processes and systems in real-time, as it was about accurately summarising their tax position.

While quarterly updates are intended as periodic summaries of income and expenditure, rather than full, detailed tax returns, accurate and up-to-date digital records are still essential.

The experience of supporting clients through the first deadline has already highlighted some useful lessons for those now within MTD ITSA, as well as for those who will be mandated to join during the course of the next two years.

1. Don’t underestimate the importance of software set-up

Investing time in the configuration of your software at the outset can make a noticeable difference to your experience under MTD. It’s worth considering your business requirements, beyond compliance, and setting up your software in a way that supports your operations long-term; for example, by reviewing and customising your chart of accounts, importing contacts or customising invoice templates. Skipping over key elements of set-up can create extra work later and potentially lead to avoidable errors in your data.

If you need to make submissions under MTD but cannot identify a software that you feel is a good fit for your requirements, we encourage you to speak to an accountant or your usual adviser at George Hay. With access to your records as early on as possible, we can support you to prepare and file your submission by the deadline.

2. The advantage of separate bank accounts

If you are trading or receiving rental income, setting up a separate bank account is something we recommend. Keeping separate accounts for your business income and your personal income will mean you spend less time categorising transactions and more time on what matters. If we support you with bookkeeping, it also means your business expenses are easier to identify.

Worth bearing in mind is that your account does not need to be with a high-street bank and a lot of the online banks – such as Monzo, Wise, Starling and Revolut – link seamlessly with the leading software platforms.

If you already have a few accounts, you may be able to repurpose one of these to accommodate your trade or rental income, rather than needing to open another.

3. Little and often is a good habit to have

Clients who reconciled their records regularly found the submission process much less onerous. Updating records little and often can be a good habit to get into, rather than needing to deal with a full quarter’s worth of transactions in one sitting. This approach also means any unusual entries or missing information can be looked into before too much time passes.

Equally, disciplined upkeep of accurate digital records does more than satisfy HMRC requirements. It can provide a clearer picture of income, costs and cash flow throughout the year, and support better planning.

The MTD quarterly submissions are designed to provide a rolling estimated tax liability, which means you can begin to save for, or put aside funds to cover, what you are likely to owe well in advance.

4. Accurate recording matters

Accurate categorisation is essential. One common issue is recording only the net amount received into the bank, rather than the gross income and any deductions or fees separately. For example, where CIS deductions have been suffered, income should be recorded gross with the deduction shown separately. Similarly, e-commerce businesses need to separate sales income from platform fees rather than simply posting the net receipt. Bank rules can be very useful here, particularly where percentage allocations are needed.

5. Make sure you map

If custom nominal codes are used in bookkeeping software, these need to be mapped to HMRC’s reporting categories. Without this mapping, figures may not flow through correctly for quarterly updates. Taking time to review the chart of accounts and reporting categories can help reduce issues at submission stage.

Incorrect mapping can result in certain figures on your submission appearing too high, or too low. If we are helping you to prepare your MTD submission, we can help you to identify where this might be the case, and to rectify this.

6. Communication is key

Communication with your adviser is key; we can only review records, resolve queries and support submissions where information is provided promptly and in full. If you are unsure about which responsibilities lie with you, and which lie with your accountant, you should discuss this ahead of the next deadline to avoid confusion.

It is worth bearing in mind that although the quarterly updates are not the actual tax return, we do still need approval to submit these on your behalf. This is the same for VAT returns and self-assessment returns and is intended to provide HMRC with assurance that the submissions have been prepared to the best of your knowledge.

FAQs

Is MTD just a temporary initiative?

Put simply, no. MTD is not going anywhere and so those who are within scope of the rules, or will be as the thresholds get smaller, need to consider how they will comply if they are not already.

Why are you asking me to comply with MTD?

We as accountants are not responsible for making the MTD rules. HMRC have developed the rules and decided who must comply with the requirements. Exactly when you need to comply with MTD ITSA depends on your turnover in the 2024/25 and 2025/26 tax years, as well as on future returns.

When can I stop submitting quarterly updates under MTD?

You can only deregister from MTD ITSA if all of your income that is within scope of the rules ceases or, for example, if your turnover fails to meet the thresholds for a period of three years. If you become uncertain about whether you need to comply, we would always recommend that you seek professional advice.

Why does it matter if I miss the deadline, when there are no penalties?

The ‘soft-landing’ period in respect of penalties will expire at the end of the 2026/27 tax year, meaning that from April 2027 (regardless if this is the point at which you are mandated to comply with MTD ITSA) late filing penalties will apply.

Support for MTD submissions

MTD ITSA is a significant administrative change, but it also creates an opportunity to improve record-keeping, gain better visibility over financial performance and reduce the year-end rush.

With more taxpayers due to be brought into the regime in future years, now is a good time for sole traders and landlords to review their systems and consider whether they are ready for digital reporting.

If you are unsure whether MTD ITSA applies to you, or whether your current software and processes are suitable, we can help you understand your obligations, prepare for future submissions and put practical steps in place before the next deadline.

If we already completed your tax return for 2025-26 and your rental income and/or trade turnover exceeded £30,000, you will need to register for MTD from April 2027. You can have your software set up ahead of this time. To speak to one of our friendly team of advisers, contact us today.