MAKING TAX DIGITAL FOR INCOME TAX — READINESS CHECKLIST ========================================================= For sole traders and landlords entering MTD for Income Tax Self Assessment (MTD ITSA). Phase 1 (gross income > £50,000) starts 6 April 2026. Phase 2 (gross income > £30,000) starts 6 April 2027. Phase 3 (gross income > £20,000) starts 6 April 2028. Use this six months out from your start date. Tick as you go. The items split into "do once" and "ongoing". ========================================================================== 12 MONTHS OUT — POSITION AND DECISION ========================================================================== [ ] Confirm whether you are in scope. The threshold is gross income (turnover, not profit) from self-employment AND property combined. If both sources together exceed the threshold, both are in scope. [ ] Identify your first MTD tax year. If you cross the threshold in the 2024–25 tax return (filed by 31 January 2026), you enter MTD on 6 April 2026. [ ] Note your four quarterly update deadlines. Standard quarterly periods end 5 July, 5 October, 5 January and 5 April. The "calendar quarter" election (ending 30 June, 30 September, 31 December, 31 March) is available once you sign up — pick early. [ ] Update deadline is one month after the quarter end. A 5 July period must be filed by 5 August. Year-end final declaration remains 31 January following the tax year, unchanged. ========================================================================== 9 MONTHS OUT — SOFTWARE ========================================================================== [ ] Choose MTD-compatible software. List of approved products: https://www.gov.uk/guidance/find-software-thats-compatible-with-making-tax-digital-for-income-tax [ ] Decide between full bookkeeping software (Xero, QuickBooks, FreeAgent, Sage Business Cloud, Coconut) versus a bridging tool for spreadsheets (e.g. 123 Sheets, Tax Optimiser). [ ] If you use a spreadsheet today and want to keep it, confirm your bridging tool can pull from your sheet structure without manual copy-paste — that's the bit MTD bans. [ ] Get a quote for software from your accountant if you have one. Many bookkeeping providers offer accountant licence pricing. ========================================================================== 6 MONTHS OUT — DATA AND BANK FEED ========================================================================== [ ] Open a separate business bank account if you don't already have one. Mixing personal and business transactions makes quarterly summaries ten times the work. [ ] Connect your bank account to your software via Open Banking. Test the feed for at least 30 days before go-live. [ ] Set your software's chart of accounts so it matches the categories HMRC expects on the SA103 (self-employment) and SA105 (property) pages. Most software does this automatically; spot-check it. [ ] Confirm your software handles your specific situation: [ ] Multiple self-employments [ ] Multiple rental properties (UK and overseas separately) [ ] Furnished holiday lettings (with the FHL regime ending, confirm 2025–26 transition treatment) [ ] Joint property ownership (typically split 50/50 unless a Form 17 is in place for spouses) [ ] CIS deductions for construction subcontractors ========================================================================== 3 MONTHS OUT — SIGN UP AND TEST ========================================================================== [ ] Sign in to your HMRC business tax account. Sign up to MTD ITSA. This requires Government Gateway ID and password. [ ] Authorise your software. The connection is per-business and per-tax, so authorise income tax specifically (separate from any existing VAT MTD authorisation). [ ] Run a test quarterly submission with the prior period's data, even if it's not officially required. Many softwares offer a "sandbox" mode. The first real submission shouldn't be your first time running through the steps. [ ] Confirm your accountant has agent authorisation for income tax specifically. The 64-8 form covers SA but MTD ITSA may require refresh. ========================================================================== ONGOING — EACH QUARTER ========================================================================== [ ] Reconcile bank feed weekly (not monthly). Small slips add up to hours of work at quarter end. [ ] Categorise transactions as you go, not in a panic the week before submission. [ ] At quarter end: [ ] Match all bank transactions [ ] Apportion mileage and home-office costs [ ] Capture cash transactions not picked up by the bank feed [ ] Review uncategorised items [ ] Submit through software within the 1-month deadline [ ] Record: [ ] Submission timestamp [ ] Reference number returned by HMRC [ ] Period covered ========================================================================== PENALTY EXPOSURE ========================================================================== MTD ITSA uses the same points-based regime as MTD VAT. Each missed quarterly update earns one point. The threshold is 4 points (matching the 4 quarters per year). Reach 4 points and you incur a £200 penalty. Each subsequent missed deadline triggers another £200 until you serve a clean compliance period. Late payment of the year-end balancing amount carries the standard 8% (base + 4%) interest plus 3% penalty after day 15, another 3% after day 30, and 10% annualised daily thereafter. ========================================================================== COMMON MISTAKES TO AVOID ========================================================================== • Treating quarterly updates as draft tax returns. They're summary totals only — accuracy matters but you can correct in the year-end final declaration. • Splitting personal and business transactions only at quarter-end instead of as you go. • Forgetting that property income and self-employment count toward the threshold combined, not separately. • Forgetting to inform your software when you cease one trade and start another — quarterly periods reset. • Assuming MTD replaces the year-end Self Assessment. It doesn't — you still complete a final declaration by 31 January following the tax year. ========================================================================== NONE OF THIS IS TAX ADVICE. It is a working preparation list based on HMRC guidance current at the time of writing. Confirm thresholds, dates, and your specific position with your accountant or HMRC. For latest official guidance: https://www.gov.uk/government/collections/making-tax-digital-for-income-tax