Understanding the eligibility thresholds and exemptions for MTD ITSA

Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA) is transforming how businesses and individuals manage their tax affairs in the UK. With phased implementation dates and income thresholds now confirmed, it is essential to understand who needs to comply and also what date you need to comply. 

Whether you are a sole trader, landlord, or managing multiple income streams, knowing if your gross income meets the qualifying threshold is the first step towards digital readiness. This guide will explain the eligibility criteria, key deadlines, and what requirements you need to complete to stay compliant.

Who needs to comply with MTD ITSA?

MTD for Income Tax Self-Assessment (MTD ITSA) applies to anyone with a qualifying income from self-employment or property rental. HMRC looks at your gross income, which is your total income before any expenses or deductions.

Here is how the thresholds will roll out: 

• From April 2026: Income over £50,000
• From April 2027: Income over £30,000
• From April 2028 (proposed): Income over £20,000

Even if your profits are below these thresholds, you may still be required to comply if your total income exceeds the threshold.

Partnerships are not yet mandated to partake in this. However, we hope there will be more information released soon to clarify HMRC’s long-term position on this.

Exemptions and exceptions to Making Tax Digital for Income Tax

Some individuals will not need to follow the new MTD rules. There are two types of exemptions: automatic exemptions and application-based exemptions.

Automatic exemptions apply if you:

• Are unable to use digital tools due to age, disability, or location
• Are subject to insolvency
• Are acting as a trustee, executor, or administrator

Application-based exemptions are available if you have a genuine reason you cannot comply. HMRC will assess each case individually and may ask for supporting evidence.

How should I prepare for MTD ITSA? 

If you are affected, here are the key steps to prepare:

Review your income sources

Review/add up your self-employment and property income to determine if you meet the qualifying threshold. Remember, MTD applies to gross income, not profit.

Choose HMRC-approved software

You’ll need HMRC-approved software to keep digital records, send quarterly updates, and file your final return.

Switch to digital record-keeping

Paper records will no longer be sufficient. Ensure your bookkeeping is digital and up-to-date, with clear separation of income streams.

Plan for quarterly submissions

MTD means sending updates every three months. Set up reminders and systems to stay on track, or speak to your accountant about making these submissions for you.

Speak to your accountant if you’re unsure

If you are unsure about your obligations, software options, or need more information, speak to your accountant.

Get your business ready for MTD ITSA

MTD for ITSA is coming; it is a big shift in how businesses will operate and record data, which is not to be underestimated! It is best to be prepared ahead of deadlines. 

If you are close to the threshold, or already over it, get organised now to make the transition smoother and stop any future headaches. If you're unsure where to start, Shorts' Owner-Managed Business Team can offer further guidance based on your specific needs.